Programme for Research: EUC Report

Lord Woolmer of Leeds: rose to move, That this House takes note of the report of the European Union Committee on the Seventh Framework Programme for Research (33rd Report, HL Paper 182).

Lord Woolmer of Leeds: My Lords, first, I express the thanks of the sub-committee to our then Clerk, Anna Murphy, and our then committee specialist, Oriel Petry, for the excellent assistance that they both gave us in conducting the short inquiry that formedthe basis of our report. I also express my warm appreciation to all the members of Sub-Committee B for their diligent work on this inquiry and in producing the report.
	Our inquiry into the Seventh Framework Programme for Research was short, because of the pressure of other internal market issues before us at the time. We concentrated therefore on a small number of matters but recognise that there are many other important facets of research, development and innovation in Europe that we were unable to address. Today's debate may provide an opportunity for your Lordships to touch on some of these wider matters. I look forward in particular to the contributions of the noble Baroness, Lady Sharp of Guildford, and the noble Lord, Lord Giddens, who both bring enormous experience to debate on research issues.
	Member states of the European Union agree that strengthening the research base and increasing research and development as a proportion of gross domestic product is an important part of the Lisbon agenda aimed at ensuring that Europe can take on the challenges of an increasingly competitive global economy. The European Council and Commission aspire to increasing research and development in Europe from 1.9 per cent to 3 per cent of GDP by 2010, but in oral evidence, the Minister told us that the Commission has now lowered its expectations to an increase of just 2.6 per cent. In the United Kingdom, our figure is around the European average at 1.9 per cent, and two-thirds of that is done by companies. Research in universities and our research institutes makes a further valuable contribution, supported by public funding programmes and by the private sector.
	The latest research and development scoreboard published by the DTI recently analysed the top 1,250 global companies by research and development spend and the top 800 UK companies. Eighty-two per cent of global research and development is in companies based in just five countries—the USA, Japan, Germany, France and the United Kingdom—with Taiwan and South Korea growing significantly and China beginning to grow quickly from a verylow base. Sixty-one per cent of all that globalresearch and development is undertaken by the top 100 companies; and 70 per cent of all research and development is in just five sectors—technology hardware, pharmaceuticals, automotive, electronics and software—while aerospace and defence companies are growing research and development fastest. In this country, we are particularly strong in pharmaceuticals and aerospace with research and development in software and financial services companies growing in importance. Remarkably, of the top 800 research and development spending companies in this country, 119 are software businesses. Private sector investment is of course influenced by the general business and taxation environment—including taxation incentives—but also by the research and skills base of a country. It is important that the research skills base is maintained and grown. Our universities have an important part to play in that.
	At the European level, the main programmes to support research have been what are called the framework programmes. It has been said to me already today that that is not the most meaningful phrase to use to communicate with the general population, but that is the name given to the programmes. The sixth programme, covering five years, ends on 31 December. The seventh programme, which will cover seven years, comes into full operation on 1 January next year.
	The budget for the seventh programme over seven years is some €54 billion—about €7.7 billion per annum. That compares with around €5 billion a year in the sixth programme, a significant increase reflecting the importance attached to it by the Council of Ministers.
	Chapter 1 of our report summarises the research and development programmes. There are four broad objectives. The first is to support co-operation between industry, universities, research centres and public bodies to gain leadership in key scientific and technological areas. This is allocated 60 to 65 per cent of the budget. The second is to promote and fund basic frontier research. This will be the responsibility of a new European Research Council, which I shall say more about later. This will take 15 to 20 per cent of the budget. The third is to train and to provide mobility and careers development for researchers through a range of schemes, known generally as the Marie Curie schemes, and will take 10 per cent of the budget. The fourth is to strengthen research and innovation capacity throughout Europe. This will take the final 10 per cent of the budget.
	Funding is expected to support nine priority themes, which are set out in paragraph 12 on page 8 of our report. In addition, the seventh framework programme covers the Euratom research framework programme, although the committee did not consider that in its inquiry. We invited and received written evidence from the CBI and Research Councils UK and took oral evidence from the noble Lord, Lord Sainsbury, the Minister responsible for this policy area. In our discussion with the Minister, we covered seven issues, set out in paragraph 18 of our report. Your Lordships will be aware that we took his oral evidence in February this year. That is a long time ago now, and things will have moved on in several areas. No doubt the Minister today will bring us up to date.
	On the overall budget, we sought to clarify the likely outcome of the then gap between the Commission's initial budget proposal for some€76 billion and the likelihood that this would be reduced significantly. The final outcome, as we now know, is a budget of some €54 billion over seven years. This is still a significant increase, which we welcome. In its written evidence to us, the CBI told us that there was little evidence that the research framework programmes have given Europe a widespread economic advantage, and still less evidence of directly attributable competitive gains for UK businesses. In his oral evidence to us, the Minister took a more positive view of the impact and importance of these research programmes, but acknowledged that, although industry still participated in the European programme, he was concerned that participation by industry in the UK and across the EU had reduced in the last five-year programme. Will the Minister reassure the CBI today by giving practical examples of where past research programmes have borne practical results in innovation and products in the market place? It is always dangerous to expect results too quickly, but we are now on the seventh programme and we should be able to convince industry that this really does pay off.
	The Minister agreed with the CBI that the largest part of the new programme should concentrate on research aimed at more direct applications andshould be industry-driven. He told us that these objectives would be met by placing industry at the heart of European technology platforms chargedwith identifying large-scale industrial research and development challenges and with developing a strategy—the so-called strategic research agendas—to deal with them. Crucially, the Minister strongly supported the proposal that the most important of those strategic agendas should be taken forward by joint technology initiatives—long-term private-public partnerships. We discuss these very important matters on page 12 of our report.
	The joint technology initiatives are a major change in the identification and delivery of improved research that is of more immediate value to industry. We welcome this new approach. It will be criticalto improving the participation of industry in a European research agenda, and to the success or failure of the seventh framework programme, so far as industry is concerned. Difficult though it is, more effort should be made to set clearer target outcomes and timelines on investments through the joint technology initiatives. When we met the Minister, he was unsure what monitoring and reporting systems would be in place for the initiatives. Will he tell your Lordships today whether there has been any progress in this area? He also conceded that businesses believe that the framework programmes are too complex and bureaucratic and that changes must be made. The Government's response to our report gives more detail on how, in their view, the Commission is seeking to tackle this problem. Is he optimistic that good words will turn into good deeds?
	The second broad objective of the framework programme is to promote and fund basic frontier research. To this end, the European Research Council has been established and a scientific council appointed as an academic body to determine the council's strategic strategy and to ensure that it operates on the basis of scientific excellence. As many of your Lordships will be aware, the scientific council will be chaired by the noble Lord, Lord Patten of Barnes, and two of the 22 members of the council—the noble Lord, Lord May of Oxford, and Professor Wendy Hall of Southampton University—are from the UK. We welcome the establishment of the European Research Council, and the strength of its scientific council is greatly encouraging. It can make a real difference to developing a coherent and productive programme of European frontier research. It is vital that its independence is strongly upheld in the years ahead, and that its decisions will always be based on excellence and merit.
	My committee was less persuaded by the Commission's proposal for the establishment of a European institute of technology. When the proposal was initially floated, it appeared to be modelled on the Massachusetts Institute of Technology. There had been considerable doubts about the idea of creating a top-down academic institution. In his oral evidence, at question 68 on page 11 of the minutes of oral evidence, the Minister told us:
	"I think the idea of a European Institute of Technology is quite unhelpful, frankly. We remain very sceptical about it".
	Many commentators emphasised the need to strengthen existing universities and research institutes across Europe in order to ensure that more of them are world class and to strengthen further those that are already world class.
	Since we reported, the European Council invited the Commission to bring forward a formal proposal, which was published on 18 October. It aims to have a European institute of technology in place by 2009. In October, the president of the vice-chancellor's organisation of Universities UK commented that although the proposal is now better defined, they still have some serious reservations. First, will funding of the European institute of technology impact onthe European Research Council's budget and its priorities? Secondly, what problems will there be if the institute of technology seeks to award its own degrees? Thirdly, will it really add value or will it threaten some of the many collaborations which already exist between universities and industry? What is the present view of the Government on the proposal and what answers would the Minister give Universities UK on its continuing concerns?
	The third objective of the framework is to strengthen training, mobility and careers development for researchers within the context of promoting excellence in European research. This will continue to be delivered through Marie Curie schemes in order to develop research skills and training capacity, which we warmly welcome. The UK research councils told us that these programmes have been strongly beneficial to the United Kingdom and have added value at the European level. They had some concerns about the topping up of national programmes and how that is affected by the European scheme. What progress has been made in meeting the concerns of the UK research councils?
	The final area of interest to our committee was the relationship between the EU competitiveness and innovation programme, EU industrial policies, structural funds and these research programmes. Each of these is of great importance, but they offer the potential for overlap, confusion, and complexity. The Minister told us that the Government shared our concern. In September, the Commission publisheda European Union innovation strategy—Putting knowledge into practice: A broad-based innovation strategy for the EU. My committee awaits legislative proposals in this area and will look carefully at these matters as well as at the positive benefits that a vigorous and well constructed innovation strategycan bring.
	Research and development lie at the heart of competitiveness, improving standards of living and the quality of lives. The framework programmes are just part of responding to the challenges and just part of the solution, but they are an important initiative at the European level and demonstrate the value of strengthening our diverse but large internal market in ideas and research communities. I look forward enormously to the debate. I beg to move.
	Moved, That this House takes note of the report of the European Union Committee on the Seventh Framework Programme for Research (33rd Report, HL Paper 182).—(Lord Woolmer of Leeds.)

Lord Bowness: My Lords, I thank the noble Lord, Lord Woolmer, for introducing this report and for the bulk of the report before your Lordships today. It fell to the Foreign Affairs, Defence and Development Policy Sub-Committee to consider the space and security programme included in the Seventh Framework Programme for Research. Therefore, that sub-committee of the European Union Committee contributed to and has the responsibility for Chapter 3. I am grateful to members of the sub-committee and our clerk, Emily Baldock, for their work in preparing this chapter.
	I do not wish to take a great deal of your Lordships' time, but I have a number of specific questions relating to Chapter 3 that arise from the Government's response, to which I hope that the Minister may be able to give some answers today. When the original proposals were published, the Government expressed serious reservations on security research. The Home Office published a long paper in consultation with the Ministry of Defence, which stated that it was essential to ensure that the European security research programme did not harm the security interests of member states or cut across either national defence research or European co-operation on defence research, and that there would need to be effective safeguards. The sub-committee agreed with that view.
	On the narrow point of the budget, to which the noble Lord, Lord Woolmer, has already referred, I would ask the Minister to clarify the position. In the Government's response, they note that the political agreement was the same as in the Commission's revised proposals. But the Government have also stated that they would like to see the budget line for space and security reduced. It is unclear from this response whether there has been any reduction in the budget line for space and security and whether this still reflects the United Kingdom's priorities on the proposed budget. Clarification would be much appreciated.
	As regards security research, the sub-committee acknowledges and welcomes the undertaking given by Commissioner Verheugen in correspondence that the focus should be on civil research. The Government have noted that under the framework programme these moneys cannot be used to fund defence research. However, this does not cover the potential problems of dual-use research, to which the sub-committee's recommendations mainly referred. We recommended a number of means of monitoring such research proposals, but the Government's response makes no specific comments on that. I should be grateful if the Minister could state specifically whether they have pressed for the involvement of COREPER and the General Affairs and External Relations Council in accordance with the recommendation made in this report, and for co-operation between the Commission member states and the European Defence Agency.
	The Government's response also refers to the role of the programme committee in which they are to participate. It states that the committee will beable to carry out the function foreseen by our committee. However, there is no indication that the programme committee should consult with, for example, the European Defence Agency. We were seized of the considerable sensitivities that may arise at the prospect of the Commission having any involvement in defence matters, even if that were legally possible.
	Having conducted a previous inquiry into the European Defence Agency, however, we are optimistic about its prospects. During that inquiry it was clear that research in some instances may have a dual use. Communications is a prime example, but it would be unfortunate if, by maintaining a too purist view, we encouraged or permitted duplication of effort and cost, or did not use the resources available. The European Defence Agency appears to be a vehicle by which this can be avoided. I would be grateful if the Minister could assure the House that the technologies with a dual use—civil and military—will be identified, and if he could advise us of the current state of co-operation between the Commission and the European Defence Agency on these issues.

Baroness Sharp of Guildford: My Lords, I pay tribute to the noble Lord, Lord Woolmer, for bringing to the House this extremely timely report. The seventh framework programme reaches its crucial decision point with the European Parliament at the end of the month, so the House now has an opportunity to debate the programme and what we are likely to gain from it. I have to confess that I asked to speak in the debate because before I came into the House—I celebrated my eighth birthday as a Member last week—I was the author of a book on the framework programmes with Professor John Peterson from Edinburgh University. It took us up to the end of the fourth framework programme and was to an extent a definitive text on framework programme workings. Given that my responsibilities on these Benches have been concentrated largely on education, I am afraid that I have not kept completely up to date, so I am enjoying the opportunity to be able to dig back into this area, although, thanks to the Education and Inspections Bill being considered both in this House and the other place this week, I have not been able to give it as much time as I would have wished.
	It is interesting to be able to look back and make comparisons between what is now being proposed under the seventh framework programme and what was set out in the earlier ones. In many ways, the shape and processes of the programmes have not changed much. There is still a large element of co-operative, collaborative research where research institutions and companies are asked to get together to form networks across Europe to progress research projects within identified areas of priority. The co-operation element of the budget is still in place,as is the mobility element, which has been an extraordinarily important part of it. That is because moving young researchers to different research institutes across Europe has been of enormous value to all the European institutions. At a meeting of the Foundation for Science and Technology, the noble Lord, Lord Rees, said that when he was a young postdoctoral student the natural thing was for him to go to America, where he met up with other European researchers. He said that, thanks largely to the framework programmes, as frequently as not young researchers now spend time meeting their European counterparts in European centres—indeed, as much as they do at American centres. That is of enormous value to Europe as a whole and particularly to the United Kingdom.
	Money is also available for infrastructureand building up capacities under the cohesion element of the programmes, which should not be underestimated. It is important that countries more backward in research should be encouraged to move forward. I believe that when I was writing in the 1990s I had more sympathy with this point than most. A substantial amount of the budget is still devoted to the joint research centres and to the nuclear aspects of EURATOM. There are some questions to be asked about that.
	What is new? I am delighted to see on the agenda the European Research Council, which is going to fund basic research. I always thought it anomalous that we were funding applied research at the federal, Commission level in Europe. It has limited immediate knock-on effects and is called "pre-competitive" research. In the United States, basic research is funded at the federal level because its effects are long term and diffuse; they cannot easily be measured. It makes more sense and is more natural to fund such research at the higher levels of government. In the US, individual states, which are the equivalent of the European member states, provide funding for applied research. We argued back in the 1990s in my book that it would make sense for the Community to put more money into basic research, and I am delighted that this idea has got off the ground with the European Research Council and even more delighted that the noble Lord, Lord Patten, is its chairman. We have two excellent representatives on the council board and I look forward to seeing what comes from it. I think that they are going to put particular emphasis on enabling two sets of researchers to carry forward their work. One set comprises young researchers without a track record but who need a leg up and the other is a set of more experienced researchers who want to pursue what are known as blue-skies projects.
	Also new are the joint technology platforms and the joint technology initiatives, which pull together industrial capabilities. These put industry in the lead in applied research—or pre-competitive research, which the CBI has said is never competitive research. I shall come back to this in a moment, because I have a few reservations about what is happening and I should like to explore those further with noble Lords.
	There is also the new thematic field of space and security, which the noble Lord, Lord Bowness, talked about. I believe that I am right in saying that space research has now been separated from security work. My figures for the July budget show that it is now very much in line with the proposals made by the Commission in May 2006. Over the seven-year period, there is some €1.4 billion for space and slightly less than that, €1.35 billion, for security. It has been agreed that the security elements should concentrate on civil research. This has been a difficult issue for some time. In the 1980s, we got to the point where the defence sector relied more on civil technologies than on defence technologies per se. The degree to which the defence sector now uses developments made in the electronic communications area is enormous, and by the 1980s civilian research was leading the field. The same is true for space and satellite technologies, which are of immense value to the military sector. It is difficult to draw a neat line here. However, I understand what noble Lords are saying and I sympathise with it.
	Totally separate from the framework programme but nevertheless being proposed at the same time is what some people call Barroso's baby; namely, the European institute of technology. There is deep scepticism about this project. We know that it has taken 150 years to develop the Massachusetts Institute of Technology and I am afraid that I do not agree that a virtual institute is the same thing as a physical place. In a way, the whole issue about the exchange and cross-fertilisation of ideas by being able to rub shoulders with others is extremely important, and location plays a part in that. That is why the United States has organisations such as the Santa Fe Institute, which serve to bring people together in one place. So I share in the scepticism expressed by members of the committee about the European institute of technology. We shall have to watch it fairly carefully.
	I am sorry that the committee reported as early as May, although the report was not actually published until the end of June. I recognise that it was trying to feed into discussions being held at the time, but some interesting things such as actual decisions on budgets and carrying forward ideas about the technology platforms have been taking place since then. I have to admit that I would have liked to see a slightly more substantial report from the committee covering rather more areas and taking more evidence that it did.
	The budget arrived at is very close indeed to the ideas put forward in May. In giving evidence to the committee, the noble Lord, Lord Sainsbury, was quite right to say that it would be about €50 billion. The total is €52 billion, but includes €2.7 billion for EURATOM. So, if you take EURATOM away, it is about €50 billion for the framework programme. That is €7 billion a year spread across 25, soon to be 27, countries. If we all had equal shares, it would be less than €200 million a year each. The UK research budget is now about €3.5 billion if you take together the research councils' budget and the HEFCE research element. Very little now goes from the Government into industrial research but, if you look at what the Government are putting in here, you see that the UK has done particularly well in the various framework programmes. We took something like16 per cent of the fifth framework programme, so we are looking at about €500 million, which, although it is not big money, is extremely useful—we certainly should not demean it. However, I question where some of that money is going. There remain questions about the joint research centres and whether we need to put as much money into them.
	I return now to the question of what benefit the industrial technology platforms bring to the UK. Those platforms aim to bring together the key players—industries, small and medium-sized businesses, financial institutions, national and regional governments, the research communities, such as universities and research centres, and the NGOs. There are somewhere in the region of 10 areas where these platforms are being put forward. They fall into six different categories, including new technologies per se, which cover, for example, work on hydrogen fuel cells and nanotechnologies; the sustainability agenda, which ranges from research into photovoltaics through to water supply; the new technologies applied to public services, including, for example, a technology platform on industrial safety; keeping high technologies at the leading edge, which includes platforms on materials and space technology; and new technologies applied to old industrial fields—the steel, construction and textile industries fall into this category.
	The committee endorsed the concept of technology platforms. Paragraph 31 of its report states that it is important that FP7 succeeds in making R&D more industry driven. Paragraph 39 states:
	"We welcome the proposal for European Technology Platforms ... to implement a strategic research agenda through public-private partnerships ... as this is most likely to ensure that the research projects are industry-driven".
	But, in paragraph 40, the committee also callsfor more effective monitoring of the European technology platforms. I endorse that call.
	The committee expressed scepticism about what we have got out of these European programmes in industrial terms. I should point out that, without the early developments in the framework programme, we would not have achieved the advances in mobile telephony and European satellite technology that we have made. There are many other achievements that we can look back on—for instance, the developments in biotechnology and the human genome project, in which our participation in the early days played a very important part. The pay-offs have been long term.
	There is a great danger that the large companies will dominate some of these technology platforms. This certainly happened in the early days of the ICT programmes. Perhaps one reason why we have seen a fall-off in industrial participation is that they have been tougher on the larger companies.
	But it is important to query whether industry is always right. I end by quoting from the evaluation report on these programmes that was carried out for the UK Government. It emphasises the importance of the degree to which some of these pay-offs fromthese programmes are long term. Paragraph 10 of the Targeted Review of Added Value Provided by International R&D Programmes states:
	"The literature makes clear that the value of R&D is not confined to (eventual) commercial outputs. 'Indirect' payoffs such as expanding the supply of trained graduates may be as, or even more, important to business and society. Framework Programme evaluations permit us to understand the range of types of benefits, as well as participant satisfaction. However, they say nothing directly regarding the extent of the Programme's impact on UK (or European) competitiveness. The benefits identified are essentially intermediate outputs (knowledge, skills, tools, relationships, et cetera). Of the many Framework sub-objectives, the evaluations reveal that 'stimulation of collaboration' is being achieved constantly".
	I come back to the point that I made at the beginning—the value of the collaborative effortsthat have been achieved from these framework programmes.

Lord Giddens: My Lords, I, too, congratulate my noble friend Lord Woolmer of Leeds and his sub-committee on their report, which is very instructive. I have been in your Lordships' House for only a relatively short period but I am very impressed by the standards set by the European committee and its sub-committees in the reports they have produced, which are always diligent and mostly always on the ball. As has been said, the Seventh Framework Programme for Research is very important to the future of Europe and is directly connected to the Lisbon agenda, to which I shall refer.
	The report is right to endorse most of the proposals for the seventh framework, including the idea of forming a European research council. It is also right to take a jaundiced view of Barroso's baby, if we are to call it that. If I remember, Mr Barroso has also spoken about having several children in Europe and that he would not favour any of his children over the others. I do not know whether or not Barroso's baby is one of those children but he seems fond of that kind of analogy.
	As for myself, if there is money there, I would prefer to see it spent on something comparable to the research chairs scheme introduced under the Chretien Government in Canada, which was very successful in getting high-level academics back from the United States. There had been a bigger brain drain from Canada to the US than from Europe and this was a very successful scheme. You could have an extensive scheme of this kind in Europe on a competitive basis which would certainly play a large part in elevating the scientific and technological status of European universities and do more than the proposed institute would do.
	Of course, a lot more money should be spent on the kinds of things that increase European competitiveness. I hope that the budget review in 2008 will be more than a notional exercise. The framework of spending in the European Union is, frankly, absurd, as we all secretly or otherwise know, because so much is being spent on the common agricultural programme. André Sapir made this point very strongly in the best report that anyone has written on the economic future of Europe, but it did not do him much good in the higher level European circles. Nevertheless, it was a point that should be made and needs to continue to be made.
	The seventh framework is closely connected to the Lisbon agenda. I would like to offer a few more critical comments on the whole notion of the seventh framework in relation to the Lisbon agenda, because I am less convinced than other speakers about whether we have got it right. The Lisbon agenda, as everybody knows, has not—to put it this way—been completely successful. It has not given the bite to European competitiveness for which many people hoped. Its fate has been that those countries which did not need it have taken a lot of notice of it. The Scandinavian countries, for example, do not need it because they have already done most of the things in the Lisbon agenda. Those countries which most need it, such as Italy, Germany and France, have tended largely to ignore it. It is significant that the German report, Agenda 2010, which picks up quite a lot of what is in the Lisbon agenda, barely mentions it. So the Lisbon report has not been a conspicuous success. The reasons are linked to issues raised by the way in which funding is proposed in the seventh framework and more widely in Europe.
	Just as the Lisbon agenda has not been too successful, as the report says, nor has the attempt to increase research and development spending in Europe. It was supposed to reach a 3 per cent target by 2010, and it is generally accepted that it will not reach that target. The Minister said that in his responses to the interrogation to which he was subjected. Business research and development is supposed to rise to two-thirds of this total investment, which is the case in the US. I do not see it as very likely in Europe, and it is not happening here. The reason is that the business segment that is supposed to elevate the proportion spent on research and development is not really likely to think in these terms. Why should business firms have an interest in increasing expenditure on research and development for its own sake? They would not unless there was market capability, which comes with it. If firms can, they will cut back on research and development if they can still sustain innovation and the marketplace. Because research and development is, for them, an economic cost, even the big companies are likely to outsource it more and more in the future.
	The relationship between research innovation and economic development is changing quite radically as the knowledge service economy matures. The model which has been used in the Lisbon agenda and in the seventh framework might be becoming less relevant than it would have been a few years ago.
	In the knowledge service economy, a great deal of the leading edge of competitiveness is given not directly by technology and science but by changes in taste and people's lifestyles—a range of diffuse factors which were not the same when we lived in a manufacturing-dominated economy. It is important to stress the significance of this, because only 30 or so years ago, nearly 40 per cent of the population of this country worked in manufacturing. Now that proportion is down to 12 per cent, and in the United States it is down to 10 per cent. Many of the leading-edge developments are much fuzzier than they used to be. For example, the entertainment industry is a massive part of the American economy. It has a connection to technology, as anyone who has seen the animated films coming out of Hollywood will know, but that connection is quite difficult to puzzle through. We should make a distinction between what I will call old-style research and development and new-style research and development.
	The report does not, as far as I know, mention the Aho report, which is a significant emendation of the Lisbon agenda. It says that we must put the stress firmly on innovation rather than research and development as such, because what matters is how research and development is taken up and used in a very different marketplace than that which existed in the past.
	Old-style research and development—by which I mean the type done in "silicon valley", which is not that old—is where you get networks of connections between universities and business, where business sometimes develops in spatial conjunction with universities as it has done in the Cambridge Science Park, for example, and where there is a close connection between technological aspects of knowledge creation and the utilisation of that in the marketplace. I suggest, and the Aho report implies, that we are moving towards a situation in which new-style research and development will be more significant in relation to the changes that are happening with the development of the knowledge-based, service-based economy.
	I would like to make three comments about this. First, one should regard all numerical targets as suspect. My noble friend Lord Woolmer said something about targets being increased, but numerical targets do not make much sense, especially when they are covering a generality of countries. It is just not feasible to suppose that different countries will have the same needs in terms of research and development, however that is defined. Moreover, it is almost certain that research and development will become increasingly internationalised. This will also affect what will happen in a particular country in terms of its utilisation. Although the 3 per cent target is a useful notional thing, I do not think it should have any hard and fast significance. It relates to one of the defects of the early version of the Lisbon agenda, which was also full of numerical targets. The Lisbon agenda has become much more effective since it has become contextualised in relation to countries. Different countries have different needs at different times and if those needs are not contextualised, they cannot really be met effectively.
	Secondly, one of the major things happening in the world is that companies are developing a global division of labour. As they develop more complex organisation across the world, it seems clear that research and development will become globalised, which will take one further away from the local silicon valley-type model. The main reason for this is the invention of a global patenting regime or moving closer to the development of such a regime. Once that has firm purchase, it will not really matter where research and development breakthroughs come from. They will be able to be utilised by firms across the world; much more important will be how that research and development is utilised.
	Thirdly, the knowledge in the knowledge economy is only partially scientific and technological, for the reasons I mentioned earlier. One of the most important emphases in the Aho report is the significance of creativity and of opening up new markets following changes in consumer tastes. Technology is rarely the dominant driving force in those areas. The iPod, for example, which has been a massive success, is based on a technological breakthrough, but the reason it has been successful is to do with lifestyle and taste. It found a niche in the style market for younger people, not only in our society but across the world. If you do not find that niche in a society based on lifestyle—that is what a service-based economy is—you will not be able toget competitiveness out of direct research and development. There is a good cluster of reasons to be a bit more sophisticated about the relationship between research and development and competitiveness. That is important for Europe as a whole to take on board, as well as this country.
	Let us take the example of Starbucks. Who knew that the British were somehow, deep in their soul, desperate for really good coffee? Who knew, indeed, that the Americans were? I used to live in America; you could get coffee all over the country and they always refilled your beaker, but it was always terrible. Who knew that the Americans had this latent taste? Spotting those sorts of things will in the new economy give companies a competitive edge. I do not dispute that those things will often be scientific and technological. It is very important for every country to keep a lead in science and technology, but there is far more to it than science and technology alone.
	I leave your Lordships with a brief story. It is said that the Americans spent $10 million in the space race trying to invent a ballpoint pen which would write upside down in space. In the mean time, the Russians used a pencil.

Lord Haskel: My Lords, what a pleasure it is to work on Sub-Committee B. Our Clerk, chairman, advisers and my colleagues are all committed and I thank them for their diligence and companionship. Like my noble friend Lord Giddens, I rather like the seventh framework programme proposal. What I like about it is that it does not treat research and development as something that just happens on its own in isolation—something that takes place in a laboratory somewhere. Of course, the research is essential, but it is not enough for innovation, which comes from a combination of things.
	The noble Baroness, Lady Sharp, spoke of collaboration; she is right. We list some of the collaborations in our report, including co-operation between universities, business and industry, research centres, public authorities and consumers. That co-operation is central to innovation—it is "knowledge transfer", to use the jargon. In addition, there have to be business models which can accommodate the new technology, and there have to be people trained in science. Indeed, the Prime Minister is speaking today about this. What excellent timing by my noble friend Lord Woolmer!
	As the noble Baroness, Lady Sharp, said, all this has to work across frontiers. I think the seventh framework proposal largely tries to take all this into account. This is why I think that our committee was right, and the Government were right to welcome it and to welcome the increased funding, which should enable innovation and more productivity in member states.
	What did cause me concern was the memorandum from the CBI to the committee which seemed to disagree with this. The CBI somehow wanted proof of this—but it seems to me that the proof is all around us. As my noble friend Lord Woolmer reminded us, more proof appeared on Monday, when the DTI published its R&D international scoreboard. Yet again, this demonstrated the link between R&D spending and growth. The CBI in its evidence is right that participation by industry fell away in the sixth framework, but this has happened everywhere—and, yes, the leeway has been taken up by the universities. But the seventh framework agreement tries to deal with this with the joint technology initiatives, the national mobility programme and the mechanisms to encourage knowledge transfer, which are all designed to involve industry more.
	The CBI has concerns about bureaucracy but, as the noble Lord, Lord Sainsbury, pointed out in his evidence, the Commission has published an annexe with proposals which set out what it is going to do about simplification. These proposals seemed sensible to him; they also seem sensible to me. They should make the funding schemes simpler and more flexible. However, there are two areas where one might criticise this proposal. The first is "why bother", because everything is going to be made in India and China anyway. Secondly, and perhaps more seriously, the seventh framework does very little for the services sector, which is now the major part of our economy.
	The view that nothing will be made here anymore is not only cynical but manifestly untrue. Lots of things are made here, but far more of them are made elsewhere—often as a result of our researching them, designing them, developing them, improving them and working on them here. This is a very important part of our industrial base. My noble friend Lord Woolmer asked the Minister for an example, and the noble Baroness, Lady Sharp, mentioned telephony. In this country we developed virtually every aspect of the modern mobile phone and its network—the liquid crystal display, the detector technology, the nipple antenna and the embedded software were all developed here. The phones themselves are made and used elsewhere, but what is of crucial importance to our economy is the trade, not only in the innovative products, but in the services relating to the installation, development and improvements to these innovations. In mobile phones, this has been enormous in our economy.
	This part of our manufacturing economy islargely ignored, often misunderstood and probably misrepresented in statistics. It has been and will be important in many other industrial sectors, in molecular biology and genetics and in the creative industries of the 21st century, as my noble friend Lord Giddens said. With our open approach to trade, collaboration and science, this is how the seventh framework programme will be of great benefit to us. It will also make us an attractive place for overseas companies to design, develop and research their new products.
	I have raised research and development in the service sector with Ministers before, and I make no apology for raising it again. My noble friend Lord Giddens touched on the matter with his reference to new-style R&D. In his evidence, the Minister spoke of the low requirement for research in the service sector. Retailing is one of our major services, which has been revolutionised by R&D. When I started work in the textile industry, 40 years ago, clothing shops had two ranges—summer and winter. Today, thanks to computer-aided design, tight integration of the supply chain by using modern communication technology, modern transport and distribution technologies, by using embedded information and instantaneous consumer feedback, stores such as Topshop and Zara renew their range every 14 days. These technologies have revolutionised the high street.
	By using these modern knowledge technologies, we have changed the lifestyle of many people. That is the kind of lifestyle niche change to which my noble friend Lord Giddens referred. Yet according to official figures, the retail industry spends an infinitesimal amount of money on research. I could make the same point about the financial services industry. A report from the Manchester Business School last year indicated that many service firmsdid not think that they were doing research and development because they regard this as a manufacturing-related concept. A couple of weeks ago, Nesta made the same point. I think that there is a lot in this. I spoke of the international R&D scoreboard that was published on Monday. Banks and retailers made their first appearance this year thanks to the adoption in Europe of the new international financial reporting standards, which require more detailed analysis of spending in the annual accounts. That detail began to show what they were spending on R&D.
	As my noble friend Lord Woolmer explained, the whole purpose of the seventh framework is to helpus respond to globalisation. Our response to globalisation is to move up the value chain. As you do, the demands of the customer changes. Higher value products require higher value services, which require greater skill—not only in science and engineering but in the social sciences. This is a matter which needs more study in the seventh framework programme.
	On the European institute of technology, the Commission's more detailed proposals were made after we reported and the Government responded. The Commission's proposal is to spend €2.4 billion to create a network of research centres which would be called the European institute of technology. Its concern is that Europe's academic standards are slipping further behind those of the United States and risk being overtaken by standards in China and India. The hope is that by linking a number of research centres and universities located around the European Union, they would help each other to raise academic standards to a level that will rival MIT.
	Like the noble Baroness, Lady Sharp, I am not sure about this. There needs to be more clarity of purpose in this arrangement; but there may be an alternative. In his report on climate change, Sir Nicholas Stern argues for a stronger focus on technological co-operation in energy R&D and in the low-carbon technologies. Co-operation in this between 25 nation states would be of great significance and could help Europe to stay in the forefront of the technology of climate change. With this firm purpose, the idea of a European institute of technology might be greeted with a bit more enthusiasm. Perhaps the Minister has more news about this institute, as my noble friend Lord Woolmer asked.
	I found it gratifying that the Government's response joined the committee in generally welcoming the proposals for the seventh framework programme. The Commission has taken steps to tackle our concerns about bureaucracy and governance and has tried to incorporate all the various aspects of business which create innovation. I have tried to point out how it needs to give more thought to incorporating innovation in the services sector. Apart from this, the seventh framework programme is a good project. Public policy cannot create innovation, but it can ensure that the ingredients are there. I think the seventh framework programme does this, and I wish it every success.

Lord Dykes: My Lords, this has by any reckoning been a most interesting debate on a compelling subject. I thank the noble Lord, Lord Haskel, for making the very interesting suggestion towards the end of his speech about possible European institute of technology usage and function. I echo other speakers in congratulating most warmly the committee chairman, the noble Lord, Lord Woolmer, with all his university expertise and knowledge, and his committee colleagues on their excellent text.
	This report encapsulates the critical decision made seven years ago that the European Union should catch up with or indeed overtake other high tech, high research and development areas of the planet in market-oriented research efforts. As we heard, the EU target is 3 per cent of GDP by 2010. It is now reduced to a more realistic figure but let us hope that those figures are left behind as the years unfold.
	The member states deliberately chose a most ambitious target for FP7 to be 160 per cent of FP6, and the long-term aims are equally ambitious. This includes Euratom, which some people with more expertise than I have regard as already having a somewhat excessive budget, but that is a separate question. We have a wonderful new jargon phrase, ET platforms. The wonderful spawning of these acronyms when the Commission produces new documentation is always amusing. I phoned an official in Brussels to get advice. He told me, "It is very easy, my friend. The ETBs will function through the SRAs via the JTIs and the ERC will guide the UGs". I said, "Thank you very much".
	The Government are generally very enthusiastic about these matters except for the Commission idea of setting up the technology institute, as has been mentioned. Of course, as we know, this must be done outside the military field, although dual usage remains an open question, as I believe the noble Lord, Lord Bowness, and others mentioned.
	The 75 per cent for funding by 2013 is a very attractive notion for many people who may want to enter these fields for the first time and respond to the Commission's challenge. I welcome the challenge that the organisers of FP7 will face in persuading industry representatives in the UK that such EU-based funding can produce competitive gains for us.We have many highly competitive, impressive international companies and an extremely impressive and competitive retail sector, but a perpetual trade deficit. Therefore, the scepticism of UK companies about these matters may be less than in countries such as France and Germany. Germany normally enjoys a substantial trade surplus and higher output levels in key sectors than us, higher productivity and a bigger export base in absolute terms. These may not matter in the future if we focus more and more on EU-wide trade figures—and why not? On current figures, we would potentially have a substantial surplus.
	I thank my noble friend Lady Sharp for her comments. She has phenomenal expertise gained over many years. As I said, the noble Lord, Lord Bowness, mentioned dual use. That is still very much an open question. I hope that the Minister will have time to refer to it today.
	These are early days but we need more examples from the pan-European representatives of industry and trade to give us examples of where EU-based, rather than national only, will give an extra dimension of competitiveness and productivity. The jury is out whenever a new FP starts, particularly this one where the financial base is much expanded. Therefore, the skill in setting up an effective monitoring and reporting-back system will be crucial. Considerable sums will be going to carefully selected projects and recipients. Does the Minister feel that the peer review mechanism will work properly? That question cannot be answered completely at the moment.
	I would like to hear more also on what the EU8, plus the two islands, especially Cyprus with its distinct academic background since independence, think about these proposals. We wait to hear more from them. In the week of the Stern report we are bound to welcome the Commission's inclusion of climate change research in the list of key priorities. Although the new elements in this seventh framework programme are by definition complex, the document establishing these modalities is itself reasonably short and straightforward. As the noble Lord, Lord Woolmer, said, for various reasons there was only one evidence session and a small number of written submissions, with the CBI sounding rather sceptical. However, there were a number of common themes in all the analyses. I hope that the Minister will have time to deal with some of those points.
	We noted the scepticism of industry and commercial sources expressed by the CBI and others—the fear of excessive bureaucracy and an absence of that operational simplicity, which is the hallmark of the Lisbon mark 2 ethos. It is important to note that that was adopted by politicians and officials as a philosophy. However, industry has also responded in tangible areas; an obvious one is pharmaceuticals. Even to a layman such as me, that seems ideally suited to the public-private syndrome of research oriented innovation.
	In the evidence the Minister also emphasised knowledge transfers, but the concomitant limits thereon if companies seek to protect their findings from competitors is an open question that needs further examination. Those who read the evidence, as I did, will have noted the matters enunciated by the noble Lord, Lord Sainsbury of Turville, such as licences, patents, trademarks, spin-off efforts and contract research. Perhaps the noble Lord, Lord McKenzie, will have time to cover some of those points in his winding-up speech. Can he also give us an update on how the regional development agencies are progressing their own work on knowledge transfers? Will we emulate the example of Japan where the huge amount of research done by big corporations' research entities has now switched somewhat to placing more emphasis on the universities' research activities?
	In future the Government aim to lay stress on more applied research from these efforts, but will the machinery be in place to achieve this at the often more cumbersome European level? Does the Minister also expect that Community 50 per cent funding will be applied in most instances, or will that be only a maximum from time to time? I recall that the sixth framework programme went only to 35 per cent. Are the officials preparing these programmes still thinking of 15 per cent going through via the European Research Council mechanism, or could it be a higher figure? Equally, would it not be a good idea to increase the ratio for mobility and capacities beyond the mooted 20 per cent?
	I imagine it is accepted everywhere now that single teams can come from single countries for ERC funding. That seems to be generally agreed. But the encouragement of what my noble friend Lady Sharp described as young researchers from various countries with experience of previous FPs coming together must be even more important than single country teams.
	Is the budget line for civil space and security research still at the reduced figure? That has become clear from the debate, but will the Minister confirm it? Then again, repeating for the third time the question of dual-use research, will that rule out excessive slippage into military areas, perhaps even by accident?
	It was hard at the start to secure much enthusiasm from the CBI, as I said earlier, but that has improved in recent months in view of assurances given by Her Majesty's Government on things such as genuine ERC independence. However, they were understandably keen on the Marie Curie fellowship scheme structure. Will this therefore stand alongside the ETP and the JTI segments for priority support?
	Incidentally, does the Minister also feel that the broad single market objectives of the entire single market policy range will be tangibly enhanced by all these new programmes? If so, could he give a putative example of that—perhaps excluding pharmaceuticals, which might be what one would seize on as a potentially good example?
	Finally, on the immediate practical outlook, is the EP on track to achieve the FP7 second reading inits November plenary and fit in with the Competitiveness Council's December meeting for final approval by member Governments? If the over-complicated bureaucratic temptations are alleviated in the application procedures and the subsequent steps, like cost reporting models, does the Minister feel that the Lisbon agenda is going to look increasingly realistic to doubtful industrial and commercial managers, many of whom are resident in this country and share our philosophy? That was expressed and echoed by the remarks of the noble Lord, Lord Giddens.
	As the six initial JTI projects go forward, will the public be able to glean through the public media both the initial decision approved by the Commission and the machinery underneath the Commission, and the developmental steps showing, effectively, work in progress?
	These new policy areas always take some time to put into action, but I hope the Minister is optimistic that the seventh framework programme, much more dramatic and interesting in appearance already, will open up an exciting new era of a united Europe catching up with higher research countries suchas the United States, Japan and Germany, whichhas a leading economy in the European Union.This will give wonderful opportunities for United Kingdom and other EU scientists, technicians and researchers—the younger the better.

Lord De Mauley: My Lords, I congratulate the noble Lord, Lord Woolmer, on securing this debate today, and apologise to him and to your Lordships for my delayed arrival. I add my thanks for the work he, as chairman, and his sub-committee have done in producing this very useful report. It has exposed some serious issues, many of which have been referred to by noble Lords today, and on which we look forward to the Minister's responses. This debate is particularly appropriate so shortly after a study by the DTI, to which the noble Lord, Lord Haskel, referred, that showed that Britain is losing ground against countries both within and outside the EU in the R&D race, casting doubt on the effectiveness of government policies to incentivise research spending.
	This debate has enabled your Lordships to consider the Commission's detailed plans for the seventh framework programme for research andtheir potential implications. This is an important framework programme, particularly because of its focus on energy and, in light of the Stern review, climate change. I am sure noble Lords will agree that climate change is one of the key challenges we face, and we need technological developments to help us tackle it.
	Inextricably linked to climate change, and one of the foundations of our economy, is electricity generation. We need new technologies to provide new, cheap, clean electricity generation. I am pleased that funds have been allocated to Euratom-related research. The European Atomic Energy Commission is carrying out research to demonstrate the viability of fusion as a future energy option to meet the needs of a growing world population. The relative abundance of fuel resources, the inherent safety aspects and the environmental friendliness of fusion are all reasons why Europe and the large nations of the world are so interested in it. In the area of energy more generally, I am also pleased to see hydrogen and fuel cells being specified by the Government as among their priorities for joint technology initiatives.
	I share many of the committee's views and concerns. I join them in applauding the intention to simplify the programme, reduce bureaucracy and deliver genuine improvements for the participant, including the academic community, while at the same time increasing the involvement of, and support for, industry. The dynamism of the European economy is increasingly dependent on investment in education, R&D and innovation. However, while understanding the assertion that the encouragement of experimentation in research can be undesirably frustrated by demands for justification of every cent of expenditure, there is on the other hand a considerable danger that the remoteness of decision-making on spending from the ultimate provider of funds, the hard-pressed taxpayer, can lead to insufficiently rigorous justification of such spending decisions. Indeed, there has been agreement in the debate today that it is essential that FP7 is transparent and accountable.
	While I join the sub-committee in welcoming the increased funding for FP7, then, I do so with an important caveat: increased funding needs also to be efficient funding. One way of trying to form at least a partial judgment on that is to look at historical performance. As the noble Lord, Lord Woolmer, asked, what work have the Government done to gauge the efficiency of the use of money in FP6 and earlier frameworks, and what plans exist to review regularly the use of FP7 money?
	Among other serious questions the CBI asked, it mentioned its concerns at increasing the budget so dramatically over FP6 without a sound cost/benefit analysis. We share its concerns that some areas of industry believe that no competitive gain for UK business has been attributed to EU research programmes. We note the Government's response to that. Will the Minister give an assurance that there will be regular reviews of the extent to which the Commission's assurances in this regard on FP7 are honoured? What consultation do the Government plan to undertake with regard to concerns expressed in the report and its evidence about national mobility programmes? Subject to that, and to the resolution of certain industry concerns, we welcome the proposal to reinvigorate the Marie Curie fellowship scheme, and would like to see it given equal priority with European technology platforms, joint technology initiatives and the European Research Council.
	Will the Minister update the House on the joint technology initiatives, and in particular on whether Research Councils UK has held discussions with the UK industrial and academic communities about the demand for technology platforms, as suggested in paragraph 35 of the report? Also, as the noble Lord, Lord Woolmer, asked, have more concrete plans now been made to put in place monitoring and reporting systems to safeguard these projects?
	The CBI mentioned its concern that the European Research Council must serve scientific priorities, as opposed to political ones. It must concern itself with challenges that cannot be tackled at national level, and place a strong emphasis on supporting business needs. The Government's response to the report indicated that there was provision for a mid-term review by 2010 of the operations of the ERC, which would allow an assessment of the adequacy of procedures to ensure its performance and its independence. We question whether waiting three years or more is necessary to allow a proper assessment of these things. Furthermore, if such a review finds the ERC to be lacking, what step will Her Majesty's Government take?
	I turn briefly to the space and security programme discussed in chapter 3, over which, as my noble friend Lord Bowness mentioned, there are some serious concerns. I look forward to the Minister's response to them. I note that both the committee and the Home Secretary accept that Commissioner Verheugen's letter is a,
	"significant statement which goes a long way towards alleviating our concerns".
	Has that letter been placed on the official record in the European Parliament?
	I note in paragraph 77 the rather interesting wording that the budget line for space and security under FP7 has not yet been agreed but will need to be reduced. What progress has been made, and what steps do the Government plan to take if they are not happy with the outcome? The Government's response to the report accepts the recommendations made on this issue in paragraph 78. What cross-departmental discussions have been held in Government to date? After all, a joined-up approach is essential on this issue.
	The Government said that they were sceptical of the Commission's proposal to establish a European Institute of Technology. We shared that scepticism, as did the noble Lord, Lord Giddens, and other noble Lords. Nevertheless, the Commission adopted the proposal on 18 October. The proposal, as the noble Baroness, Lady Sharp, mentioned, has changed to a more virtual concept than that which was originally proposed, but it will still involve considerable investment. The EIT must demonstrate beyond any doubt that it adds value, creates new projects, and does not either reinvent wheels or divert funding from other valuable research.
	As regards a time frame for FP7, previous framework programmes for research have run for five years, whereas this one is proposed to run for seven years. I would be interested to hear the Minister's views on the merits of that proposal. Seven years has the advantage that it provides a longer-term investment framework for businesses, but there may be other considerations. There can be no doubt, as the report states, that efforts to strengthen the research base and activity are important for the competitive position of the European Union and of course the United Kingdom, as a member. But we cannottalk about competitiveness without discussing productivity. Redesign of the nuts and bolts of an organisation or an industry is in some eyes just as important as innovation. It increases productivity and thus competitiveness. Blue sky thinking and research need to go hand in hand with improved efficiency of processes and a serious look at the burden of regulation, which can depress productivity. I hope that the Minister will agree with me on this point and inform your Lordships what discussions he has had on this matter during negotiations on FP7. Will he also expand on the extent to which he is comfortable that the competitiveness and innovation programme has been properly integrated with existing programmes, such as the framework programme, the EU industrial policy and structural funds. Is he satisfied that the problems inherent in current initiatives have been adequately addressed?
	Finally, in my quest to highlight poor use of English, I draw attention to the phrase "non-report", which appears more than once in the letter from the then-Home Secretary on page 22. I am sure that this phrase has been used for many years, and I understand the meaning attributed to it, but seen in the cold light of day one surely must agree that it has a certain flavour of Edward Lear, or perhaps more relevantly Hilaire Belloc, about it. I am pleased, however, that there have been no non-speeches today. I thank the noble Lord, Lord Woolmer, for initiating this valuable debate. We on these Benches will be keeping a careful eye on the progress of the FP7 discussions. I look forward to hearing the Minister's comments on the many questions raised and the assurances sought today.

Lord McKenzie of Luton: My Lords, I start by thanking my noble friend Lord Woolmer for introducing his report and for the wide-ranging way in which he did so. I thank all noble Lords who participated in this debate and in the work of the sub-committee. The Government have given their formal written response to the recommendations and conclusions of the sub-committee.
	Raising Europe's innovation and R&D performance is central to achieving the Lisbon goals and the Government support the further development of the European research area through FP7. UK organisations have traditionally done well out of the framework programme. In FP4 and FP5, UK organisations were involved in more projects than any other member state, and in financial terms secured nearly 16 per cent—more than €2 billion—of the overall funding, second only to Germany. So far in FP6, UK organisations are involved in 48 per cent of projects and have secured 14.5 per cent of funding—in the region of €1.74 billion.
	The performance of the UK higher education institute sector has steadily increased in recent years. In FP5, UK HEIs were responsible for 46 per cent of UK participations and almost 50 per cent of funding—€1 billion out of €2.1 billion awarded to the UK. In FP6, those figures have risen to 56 per cent of participations and 58 per cent of funding.
	UK business participation in FP6 hovers around 20 per cent of total UK participations. Feedback from business suggests that the main reasons for this relatively low level of participation—as referred to by several noble Lords—are increased bureaucracy and decreasing relevance in the scope and focus of the programme, which adversely impact on cost-benefit ratios. The proposals for FP7 go some way to addressing these concerns, and I will say more about that later.
	I note the comments of my noble friend Lord Haskel about the retail sector. This is a crucially important sector to the UK and one where traditional measures of R&D intensity may not be generally applicable. Recognising that, a number of strands of work are being taken forward in multilateral fora to consider this issue. Applications developed through research funded by the framework programme can find uses in the retail sector, as my noble friend rightly pointed out. The DTI's R&D scoreboard shows that some large retailers, such as Tesco, have begun to disclose substantial R&D in their accounts. Technology clearly has an important part to play in the retail sector's innovation. My noble friend Lord Giddens touched on the issue of the change in the nature of research and innovation.
	The committee's report touched on concerns that some areas of business believed that there was no competitive gain from participating in EU research programmes. However, in a DTI-commissioned study of all UK participants in FP4 and FP5, the majority of responders endorsed the need for funding science and technology at the European level. The survey also showed that the framework programme produces considerable added value for the UK research and policy communities, including: addressing questions that require a critical mass and cannot be tackled at the national level; providing a mechanism to pool resources, facilities and knowledge; and tackling issues of a specific European nature. As I mentioned earlier, the Government believe that the proposed structure and implementation procedures for FP7 go some way to addressing some of the programme's perceived weaknesses.
	The architecture of FP7—with four specific programmes covering ideas, people, co-operationand capacities—provides a clearer focus on the programme's overall aims: strengthening the science and technology base, improving industrial competitiveness, and supporting EU policy development. The UK's position paper submitted in 2004 supported the concept of establishing a European Research Council as a way of raising the quality of the best basic research. The proposal for the ERC has been hotly debated in both the European Council and the Parliament, and has found support from all parties. The result is the establishment of an ERC that is autonomous from the Commission and member states and run by scientist for scientists. Funding will be allocated through competition, based on excellence and originality as assessed by peer review. Most noble Lords who have spoken today have supported the ERC, particularly the noble Baroness, Lady Sharp.
	The position paper also stressed the need for FP7 to contribute to increasing Europe's competitiveness and to leveraging increased private sector investment so that research translates into world-leading goods and services. The Government believe that the FP7 proposal reflects UK priorities and recognises the importance of industrial engagement, not least by allocating 65 per cent of the budget to the co-operation specific programme. The UK position paper was also clear that the seventh framework programme should underpin better policy-making at the level of Community by providing quality research to inform policy debates in Brussels and in other member states. The Government believe that FP7 reflects UK priorities in this respect, with clear funding streams allocated to priority areas for policy-making in the coming decade, such as healthy ageing, infectious diseases, obesity, renewable energy sources and climate change, a point raised by the noble Lord, Lord De Mauley.
	The Commission has been receptive to the concerns expressed by the Government and shared by industry across Europe about the need to ensure that FP7 is driven by the ultimate end-users of research in industry. It has sought to strengthen the industry input into the policy-making progress through such instruments as the European technology platforms and it is seeking to make FP7 more industry-friendly in its programmes and structures. The Government welcome this increased openness to the needs of industry.
	We also welcome the increased effort to engage industrial end-users in establishing priorities for FP7 funding in the co-operation specific programme. European technology platforms can play a key role in identifying a strategic research agenda for their industrial sector. This should also feed into the process of setting the work programmes and defining the fields in which the calls for proposals for FP7 funding will be made. The individual projects undertaken to advance SRAs will be funded through these calls using established FP funding instruments as well as other potential sources of funding.
	Joint technology initiatives, which involve FP funding in support of large-scale public/private partnerships, are also driven by industry but go a stage further in terms of integration and combining private sector, national and European level funding. Six possible JTIs have been identified by the Commission but it is not yet clear how many of those will ultimately be funded and on what scale. For example, it is possible that there will be a staggered start, with some JTIs being launched before others. Our expectation now is that the Commission will come forward with proposals on this subject in the first half of 2007.
	My noble friend Lord Woolmer and the noble Lords, Lord Dykes and Lord De Mauley, asked about the monitoring processes and about what is being done in practice. Until we see the detailed proposals in 2007, it is not possible to say precisely what the response will be, but it is an important issue with which the Government will fully engage. The Government's preference at this stage, subject to further information about the scale, scope and structure of individual JTIs, would be for the JTIs on innovative medicines, aeronautics, and hydrogenand fuel cells to be priorities for an early launch.That preference reflects the views of business communicated to us by the concerned sectors.
	When considering the effectiveness of programme implementation, it should be noted that the Commission faces a major challenge in delivering the framework programme. It is a large and inherently complex transnational programme, where the desired balance between financial propriety and user-friendliness is not easily achieved. The Commission has already undertaken a programme of short-term actions to improve the delivery of FP6, and that has had a positive impact. It has also made a strong commitment to simplify matters further in FP7. The noble Lord, Lord De Mauley, asked for much more focus on the financial spend and on the monitoringof that spend. There is a need to make those programmes user-friendly and a question over the extent to which there should properly be full accountability.
	In its proposal for the FP7 rules of participation, which define the rights and obligations of those taking part in the programme, the Commission has sought to address the bureaucracy associated with it. The main change is an increase in reimbursement rates and the wider use of lump-sum and flat-rate financing. The 75 per cent reimbursement rate for universities is good news because it makes EU funding competitive with national funding. The Commission has also proposed a number of other measures to ease administrative burdens on participants. I shall come to those in a moment.
	The noble Lord, Lord Dykes, talked about funding rates. In FP6, the rate of funding for demonstration activities has been increased from 35 to 50 per cent. For research activities, it has been increased from50 to up to 75 per cent. In addition, in the ERC, projects will be funded at 100 per cent.
	Issues relating to the easing of administrative burdens include reducing audit and other reporting requirements, ensuring more consistent interpretation of rules, rationalising the number and size of documents, and relaxing requirements surrounding the dissemination, use of and access to the results of funded projects.
	Negotiations on the FP7 are drawing to an end and a final deal with the European Parliament is expected in November. A common position text on both the nuclear and non-nuclear parts was agreed at the Competitiveness Council in September. This wasa real achievement, requiring the resolution of longstanding and sensitive issues on human embryonic stem cell and nuclear research.
	Human embryonic stem cell research is always a sensitive and complex issue to negotiate, as the acceptability of this field of research varies according to the cultural and religious diversity of individual member states. For that reason, the UK argued strongly and successfully that HESC research should be governed by national law in accordance with the principle of subsidiarity, thus maintaining the agreement reached under FP6. This agreement is a true compromise by all member states and places no further restrictions on HESC research that can be carried out under FP7.
	Several noble Lords commented on the budget. The agreement for FP7 sets the budget at approximately €54 billion, equating to roughly€7.7 billion per annum. This was a difficult set of negotiations due to conflicting interests and priorities, but it had a satisfactory outcome for the UK as it sees increases in line with the UK position. Although not as great as the Commission's original proposal, which sought to double the budget for FP7, it is still a substantial increase over the life of the programme and an increase of around 75 per cent in real termsby 2013.
	I should like to touch on the recent proposals to form a European institute of technology, also referred to in the committee's report. I think it is fair to say that that proposal did not find favour among noble Lords today. The proposed EIT aims to raise the level of innovation and knowledge transfer in all member states by involving partners in the fields of education, research and business. It will seek to draw on both European and international expertise, and is part of a raft of ongoing measures to boost competitiveness as part of the Lisbon Agenda.
	The proposed EIT will support a series of autonomous partnerships—knowledge and innovation communities—tasked with carrying out interdisciplinary research and knowledge transfer in fields of key economic and societal interest. Communities will be made up of partners from both the public and private sectors, such as teams from universities, businesses and research organisations. They will be supported by a light-touch, independent governing board, which will define the global strategic goals of the EIT. The Government have been closely involved in discussions and are pleased that the Commission has taken a number of our concerns on board. We are keen to ensure that this proposal adds real value in terms of innovation and knowledge transfer, that it has a clear focus and that it does not overlap unhelpfully with existing instruments.
	A number of questions remain on which the Government will be seeking further clarification during the next phase of negotiation. The most pressing concern relates to funding. The Commission has proposed a budget for 2007-13 of approximately €2.4 billion, but it is still not clear where the funding will come from, how market funding will be attracted or how this will impact on other budgetary priorities. This remains a concern for the UK, and we cannot support a proposal with such financial implications without greater clarity, especially where this could prejudge the outcome of a fundamental review of the EU budget. It is important that funds to implement this are found within existing EU resources and are not taken from other existing programmes, suchas FP7.
	I was asked a number of specific questions. My noble friend Lord Woolmer touched on the issue of the awarding of degrees. The proposals that have come forward do not include plans for the EIT to award degrees and diplomas without member state recognition.
	The noble Lords, Lord Bowness, Lord Dykes and Lord De Mauley, asked about the security research budget and raised a number of issues on that. Security research within FP7 can only be civil research. The UK has been successful in explicitly referencing in all layers of the legal text that civil research is the only research that can be covered within FP7. The UK proposal to separate space and security into two thematic priorities and to reduce the budget in both areas has been reflected in the final decision. However, I can confirm that the budget for security research has been reduced It is now approximately 2 per cent of the total budget for the Co-operation Chapter.
	The issue of dual use was raised, particularly by the noble Lord, Lord Bowness, and that has certainly featured much in the negotiations for FP7. For that reason, member states and the European Parliament have successfully argued that a regulatory committee should manage the work programme for this area, thus building confidence that mechanisms are in place closely to monitor the type of research and potential applications of research in this area. In response to the involvement of COREPER in the process, we do not foresee a role for it unless the regulatory committee refers issues to the council.
	Several noble Lords spoke about mobility schemes. The noble Baroness Lady Sharp, talked about the importance of ensuring that Europe creates an environment which promotes the careers of individual researchers to allow them to be mobile throughout Europe and to be wherever the best research is being carried out.
	On the topping up of national programmes, the main focus remains on the Marie Curie fellowships. The topping up of national programmes, as I understand it, will not take place in the first year, allowing time for further consideration. The Marie Curie budget is recognised as having been successful. On that basis the budget for the Marie Curie fellowships has increased significantly from FP6to FP7.
	My noble friend Lord Woolmer asked what we have to show for 25 years of these arrangements and what the FP has ever done for us. That was answered in part by the noble Baroness, Lady Sharp, and by my noble friend Lord Haskel who gave some specific examples. An FP5 project involving 13 partners from six different countries created the world's largest collection of muscular dystrophy specialists to develop new diagnostics and treatments. There are others that can be set out.
	In all of this we have to bear in mind that, despite successive increases in the EU's R&D budget, the European funding represents only around 5.3 per cent, 3.6 per cent of total public funding for research in Europe; in other words, about 94 per cent of public funds for research are invested at national level. Given that comparatively small budget, I suggest that the Union's R&D policy has been remarkably successful in the past 20 years. It is estimated that on average one euro of FP funding leads to a long-term increase in industry value-added of between seven and 14 euros.
	The noble Lord, Lord De Mauley, asked about the importance of productivity. Of course, I agree. The data since 1997 show that the UK has made significant strides in closing the gap with, or overtaking, some of our competitors. As he stressed, it is also very important that the CIP programme is integrated with other parts of the budget to ensure that it is a comprehensive and integrated process.
	I shall study the record and, if I find that I have failed to answer other questions, I shall write to noble Lords as appropriate. Today, technology and scientific understanding are changing our world faster than ever before and developments in information and communications technology, new materials, biotechnology, new fuels and nanotechnology are unleashing new waves of innovation and creating many opportunities for entrepreneurial business to gain competitive advantage. FP7 has the capacity to make an important contribution to that endeavour.

Lord Woolmer of Leeds: My Lords, as anticipated, this has been a worthwhile debate. I thank all noble Lords who have contributed. I have a couple of observations to make as chairman of one of your Lordships' European sub-committees. We are often encouraged to have short inquiries as well as longer ones, but I have yet to find anyone who thinks that the subject in which he is most interested should be covered in a short inquiry. We would love to have more time.
	First, almost at the same time, the European Union published its energy paper, and noble Lords will recall the state of the world's energy markets then. As the public and the House would expect, that also took our attention. I apologise to all noble Lords who feel that we should have spent more time on this. We would have loved to have done so. It is a sub-committee of extraordinary scope and I hope that we shall be able to return to the many issues that were raised.
	Secondly, questions were raised about whether the sub-committee shared the scepticism of the CBI. It does not at all. Nevertheless, the view of industry must be heard and we must understand that it says these things. However, if we cannot explain to the public the benefits of the products and outcomes, we will not take people with us. The acronyms that floated around the debate show how easily we can lose touch when communicating with the public. I ask, as the Minister did, that we demonstrate the benefits, because the public wish to know them. They demonstrate the value of action at the European level. We are certainly very supportive.
	After seven years on the sub-committee and four years as chair, this is the last time that I shall have the pleasure of introducing a report from Sub-Committee B, as I stand down at the end of this Session. Craving your indulgence, I wish to convey my very warmest thanks to all the Members of the sub-committee with whom I have served and all the officers of the European Union Select Committee of the House. It has been a pleasure and an honour to serve and I look forward to following the exploits of my successor.

On Question, Motion agreed to.

Social Landlords (Permissible Additional Purposes) (England) Order 2006

Lord Avebury: rose to move, That an humble Address be presented to Her Majesty praying that the order, laid before the House on 26 July, be annulled (S.I. 2006/1968).

Lord Avebury: My Lords, I want to make it absolutely clear that I am not opposing the order, but simply using the device of praying against it to discuss some of the problems of enlisting social landlords in the provision and management of Gypsy sites. This is not a simple matter, as one can see from the fact that it was two and a half years ago when the then Minister, Yvette Cooper, said in another place that she would amend the purposes for which the Housing Corporation could provide funding to include the construction, maintenance and management of these sites. We agree with that policy, which we advocated under the heading "Enlisting Social Landlords", in a document that the Liberal Democrats published in 2002, although we do not claim any particular monopoly of the idea, which was widely canvassed at the time.
	At a meeting last week with the Minister, Gypsy and Traveller organisation representatives expressed disappointment that it was taking so long to get in place the new system of site provision, of which this order is an essential component. The delay in bringing forward the order was occasioned by the need to consult on the definition of Gypsies and Travellers. As your Lordships' Merits of Statutory Instruments Select Committee explained in its useful memorandum on the subject, we now have two definitions, for reasons which are comprehensible but which may lead to some confusion. The one used here is based on nomadism rather than ethnicity, but it is extended to include those who are no longer nomadic because of illness or old age, and travelling showmen, who I am glad are included because frequently in the past they have been left out of these discussions. It includes people who are not Romany Gypsies or Irish Travellers but who follow a cultural tradition of nomadism or living in caravans. For the purposes of the Housing Act, under which local authorities are required to assess the accommodation needs of Gypsies and Travellers in their areas, a broader definition was needed to encompass ethnic Gypsies and Irish Travellers, many of whom are permanently settled either voluntarily or because of the huge difficulty of following a nomadic way of life now that it is unlawful to stop anywhere except on transit sites, which are few and far between.
	The first thing to say about the order is that social landlords are not expected to make provision for ethnic Gypsies who may be tempted to resume living in a caravan because of the greater availability of land for Gypsy sites as a result of the permissions that will be granted following the implementation of the Planning and Compulsory Purchase Act. Yet there may be cases where extended families, some of whose members are in bricks and mortar and others on caravan sites, would like to be reunited on a site provided by a social landlord. Is the order flexible enough to cope with that kind of demand, when some people may come from bricks and mortar and others from substandard sites or sites that are to be eliminated?
	Secondly, at the recent meeting between the All-Party Group on Gypsy and Traveller Law Reform and Meg Munn MP, it was made clear that the priority for social landlords would be to cater for those among the 3,000 families living on unauthorised sites who will be unable to buy landto develop sites for themselves when the landfinally becomes available following the completion of the needs assessments and the incorporation of the numbers resulting from those assessments in the regional spatial strategies. It will be many years before Travellers who are living on some of the grossly unsatisfactory sites provided under the 1968 Act—some of which are next to sewage works or under motorways—can be rehoused. As far as I can see, there is nothing in the order to prevent schemes to rehouse people from sink sites. If they are identified as needing to be rehoused in the needs assessments, social landlords might well have a role to play. I hope that the Minister will say something about that.
	In some areas, local authority sites are being closed without alternative provision for the residents being made. In London, there has been a sharp decline in the number of pitches: 76 were lost in the 10 years to 2004, according to the London Gypsy and Traveller group and sites in Newham and Hackney on land needed for the Olympic Games are threatened with imminent closure, with no agreement on how they are to be relocated. It would be ironic if the Olympic Games, which were touted as a means of reducing social deprivation in London, were to decrease further the supply of accommodation for the most deprived community of all. I hope that Ministers will knock heads together, particularly in the LDA, to see that that does not happen.
	I mentioned that case to indicate that the longer it takes to mobilise social landlords, the bigger the task confronting them will be. They cannot really get going until the local authority has been through the needs assessment and has produced the development plan document identifying the land needed for the purpose. In the mean while, they might occasionally be able to use Circular 1/06, as described in the Planning Inspectorate letter of 24 July, to get planning permission on suitable land that has not yet been designated in the DPD. However, as with private individuals, that approach means additional trouble and expense and might sour relationships between social landlords and local authorities.
	That brings me to the question of whether RSLs are going to come forward in sufficient numbers and with sufficient resources to match the need. During the passage of the Housing Bill, the Government rejected a proposal to give local authorities a reserve power to develop sites in areas where the need for rented pitches was not being met, so RSLs are assumed to be capable of rising to the challenge and providing rented sites throughout the country. At the meeting of the all-party group, we were told that there were new entrants—until recently, Novas has had the field to itself. Who are those new entrants, in what areas of the country are they operating and what sites have they provided or are they in the course of providing? What efforts is the DCLG making to enlist new providers?
	At that meeting, we raised the problem of rising land prices, which are likely to create problems for RSLs as well as for private developers of sites. Once the land has been identified in a DPD, its value is likely to be considerably higher than it would be for agricultural land, which would have to be reflected in the rent charged by the RSL. In the case of county council and RSL-owned sites, which have been brought under a procrustean system of regulation so that the amount of housing benefit payable is less than the economic rent, many existing sites are now loss-making, and there is no incentive for social landlords to develop new sites where the rents would need to be higher if they cannot recover the amounts from tenants who are on benefit. Research carried out for the DWP led to a recommendation that the allowable rent for benefit purposes on all Gypsy sites should be increased by £15 per pitch to reflect the cost of management on the site, depending on its attainment of quality standards for maintenance and health and safety. Families who need a lot of support will not be well catered for under these arrangements and the assumption that all Gypsy sites require the same amount of management resources is manifestly untrue. RSLs would naturally tend to offer places on their sites to Gypsies who they think will not give rise to major problems, leaving difficult families who need a lot of support to fend for themselves. The arrangements recommended by Spark are not flexible enough to cope with the wide range of situations, and it would be preferable to abolish rent controls for social and local authority landlords, who may be expected to act responsibly without that incentive.
	I welcome the extension of funding for Gypsyand Traveller sites to RSLs as well as local authorities—£28 million will be available in 2006-07 and £35 million will be available in the following year in order to provide new sites or refurbish existing ones. The extent to which RSLs were involved inthe bids for the current year and their expressionsof interest for 2006-07, which had to be in by30 September, would be an indication of their likely interest in the Housing Corporation funding resulting from this order. I would be grateful if the Minister could give us the figures. It would also be useful to know how many RSLs have constitutions that allow them to take on the provision of Gypsy and Traveller sites or have applied for consent to the necessary changes to their constitutions under paragraphs 9 to 11 of Schedule 1 to the Housing Act 1996.
	When we meet Gypsies and Travellers, as in the meeting with the Minister last week, they are naturally sceptical about the ultimate success of the strategy for ensuring that members of their communities have a place to live. Inevitably, residents in the neighbourhood of unauthorised encampments are dissatisfied with the rate of progress that is being made. It is important that the Government should keep both sets of people informed of what is being done, and this order is one essential piece of the jigsaw.
	Moved, That an humble Address be presented to Her Majesty praying that the order, laid before the House on 26 July, be annulled (S.I. 2006/1968).—(Lord Avebury.)

Lord Bassam of Brighton: My Lords, I thank the noble Lord, Lord Avebury, for raising this important issue. To my knowledge and, on occasions, to my cost, he has a long-held interest in Gypsy and Traveller issues, and we have debated them in your Lordships' House on a number of occasions. I have enjoyed those debates and the noble Lord's thoughtful approach has greatly aided us in considering some difficult issues. I know that the noble Lord has spent a lot of time and effort promoting the provision of more authorised sites, and he has asked telling and effective questions about government policy. I also thank him for his involvement in those debates and in the All-Party Group on Gypsy and Traveller Law Reform.
	I shall try to answer the noble Lord's specific queries, but first it may be useful if I place on record the Government's policy on Gypsy and Traveller issues. The latest available caravan count figures, for January 2006, show that around 21 per cent of Gypsy and Traveller caravans are on unauthorised sites. This situation is not sustainable, and the presence of unauthorised sites can create tensions between Gypsies and Travellers and the settled community. In order to remedy the problems often associated with unauthorised sites, we are pursuing a dual approach: more site provision coupled with more effective enforcement.
	Pursuing an enforcement approach alone simply moves unauthorised campers around; so more sites are crucial if we are going to solve the problems of unauthorised camping. To enable the provision of more sites, we have put in place a policy framework to ensure that the needs of Gypsies and Travellers, which have so long been overlooked, are assessed and planned in a strategic approach.
	The Housing Act 2004 will place a duty on local authorities to assess the accommodation needs of Gypsies and Travellers, in the same way that they currently do for the rest of the population. The accommodation needs assessment process will identify the need for caravan site pitches in each local authority area. I understand that assessments are under way or have been completed in 80 per cent of local authorities.
	These assessments will inform revisions to the regional spatial strategy, where the regional planning body will take a strategic view of need across the region and set out the number of pitches which each local planning authority or sub-region will be expected to deliver. Each local planning authority must then identify land in its local plans in line with the pitch requirements specified in the regional special strategy. The land identified can be for both private and social provision, allowing individuals to apply for planning permission on the land or for the local authority or registered social landlord to develop sites.
	While we know that many Gypsies and Travellers would like to buy their own plot of land to develop privately, there are many who simply cannot afford to go down that route. The provision of affordable sites, either through local authorities or registered social landlords is therefore an important aspect of our strategy to deliver more sites.
	We have significantly increased the resources available for site provision over the next few years. We have made £56 million available for Gypsy and Traveller site grant over the period 2006-08;£22 million in 2006-07; and £34 million in 2007-08. Prior to this around £8 million had been made available annually, since 2001-02.
	Until recently, local authorities were the only housing provider that could access our Gypsy and Traveller sites grant. However, the order enables registered social landlords to apply for our grant to develop new sites.
	The noble Lord, Lord Avebury, played an active part in discussions on Gypsy and Traveller issues during the passage of the Housing Act 2004. As he has explained, he was one of the main supporters of allowing registered social landlords to provide sites. Following discussion at that time, the Government committed to providing RSLs with the power to provide sites and receive government funding to do so. Today's order honours our commitment.
	RSLs are important as potential providers of sites for Gypsies and Travellers, particularly given their expertise in housing vulnerable groups. Their involvement will contribute to increasing site provision and reducing unauthorised camping. The order, which came into force in August, amends the permissible purposes of RSLs to enable them to provide and manage Gypsy and Traveller sites and therefore receive grant funding for that purpose.Both local authorities and RSLs are encouraged to develop schemes and bid for the funding available. Responsibility for recommending schemes to Ministers now rests with the regional assemblies. Giving the regions this responsibility enables them to steer investment towards emerging priorities.
	In the first bidding round for grant in 2006-07, we allocated £17 million to 80 schemes that will provide around 140 additional pitches, secure a further40 pitches for longer-term use—for example, by bringing unoccupied private pitches into public ownership—and enable the refurbishment of nearly 60 sites.
	Two RSLs have been allocated funding in the first round of grant for 2006-07: Novas has been allocated around £214,000 for refurbishment work at the Star Lane site in Bromley; and the Richmond Housing Partnership has been allocated £112,000 for refurbishment work at the Bishops Grove site. Since the order has come into force they have been formally notified of this.
	Bidding for the second round of grant to use up the remaining funding for 2006-07 has recently closed, and we hope to announce successful schemes early next year. In the second round, three RSLs have either bid for remaining funding for 2006-07 or have expressed a firm interest in funding for 2007-08.
	We want to increase this involvement and develop RSLs' interest in this area into active involvement. We are working closely with the Housing Corporation to encourage RSLs to become more involved in providing and managing Gypsy and Traveller sites. We are establishing a forum of interested RSLs to help us understand how we can facilitate this involvement; engage them in developments such as the preparation of guidance on site design and management that will impact on them; and provide an opportunity for networking and the sharing of knowledge and experience in this area. I understand that the next meeting of the forum will be held shortly.
	We are also involved in other work streamsthat will help encourage the involvement of RSLs in Gypsy and Traveller sites. An important aspect of any site provision is its management. A well managed site ensures that Gypsies and Travellers living on it can live peacefully with each other and, importantly, with the settled community. We are currently working on site management guidance and will be consulting and considering responses from stakeholders shortly.
	As we see proposals for new sites coming forward, site design will be an important issue and, in conjunction with the Housing Corporation, we have commissioned some site design guidance to ensure that new sites are designed in sustainable locations.
	As I think we all agree, new sites for Gypsies and Travellers are desperately needed, not only to cater for need which may arise in the future but also to address the significant backlog which has arisen as a result of lack of provision over a number of years. The order the noble Lord has brought forward for discussion today provides additional opportunities for the provision of new sites.
	The Government believe that RSLs are an important stakeholder and potential provider and can translate their expertise gained from providing bricks and mortar housing to the provision of Gypsy and Traveller sites, and the management of those sites.
	The noble Lord, Lord Avebury, made a number of other points, which as a matter of courtesy I should try to respond to. He referred to the flexibility of the definition. We think that the definition of Gypsy and Traveller used in the order covers those Gypsies and Travellers living in bricks and mortar housing, and we think that the breadth of that definition will make provision much easier and enable those particular groups to move between different sorts of accommodation.
	The noble Lord referred to the challenges posed by the development of the Olympics site. We are working with the LDA and local authorities, and Gypsies and Travellers in Newham and Hackney on relocation of sites, and to ensure that land needed for the Olympics is replaced where it affects the interests of Gypsies and Travellers. That is a very sensitive issue which will continue to require delicate handling over the next few years.
	The noble Lord, Lord Avebury, made reference to the housing benefit differences between different types of Gypsy and Traveller site. We are aware of the anomalies in how the housing benefit is calculated between those different types of sites. We are working very carefully with the Department for Work and Pensions to resolve those issues.
	I think that the noble Lord also asked how many RSLs have changed their constitutions to enable them to undertake the management of sites. I have no answer to that. I will try and find it out. There are a number of RSLs applying for grant who are looking to provide services in the future, and they will obviously have made some adjustment to their constitution to do that. I would have thought, however, that housing associations in particular would have the necessary flexibility. It might be an issue in some cases, however. If the noble Lord has examples of any difficulties, we would obviously be grateful to hear from him.
	In conclusion, we have increased resources, particularly to provide new sites. We are the first Government to have done that for some time. We recognise that the policy of simply shifting the problem around—as many have seen it—does not work well, and we must have a dual approach. The refurbishment grant will enable local authorities and RSLs to bring the standard of existing sites up to more appropriate and modern-day standards. Moving away from the 1968 policy has enabled us to reassess the position and think about the demands that Gypsies and Travellers place on settled communities, how we must work more sensitively in that area and about a broader range of social provision. That enables us to take a more progressive approach to some of these issues than has perhaps been the case in the past.
	Our policy is right, brave and encourages partnership. The use of the regional spatial strategy has been the precursor to a major step forward. No doubt, we will return to the issue of sites on other appropriate occasions, but I congratulate the noble Lord on raising this issue as he has. I hope that he will now feel confident in withdrawing his Motion.

Lord Avebury: My Lords, it has been useful to allow the Minister the opportunity to explain how the Government's policies fit together. They are not exactly simple, with the Planning and Compulsory Purchase Act 2004, the Housing Act 2004, this order and the various other components which dovetail together. As I said in my initial remarks, they have not yet produced the sort of results that Gypsies and Travellers had hoped for. The Minister said that we still have 21 per cent of Gypsies and Travellers living on unauthorised sites, which happens to be about the same percentage we had in January 1997, before this Government came into office. We cannot say that policies have been very successful over the past nine years.
	We can now look forward to a situation where there will be a more rapid progress arising from the various components the Minister has described. In particular, he explained how the £56 million has been allotted to the refurbishment and construction of new sites. He said that the amount allotted in the first year was £17 million, which fell some way short of the £21 million allocated. Was that because some of the submitted schemes were substandard or because there was not enough demand for the £21 million? Perhaps he could write to me on that.
	The Minister said that there were two RSLs in the first tranche, and three had either put in bids or expressed interest for the £35 million coming up in 2007-08. That seemed rather disappointing. I hope that, as a result of the forum that the Minister mentioned, he will be able to enlist a number of other RSLs in this important task. Since we have already been through the bidding round for 2006-07 and 2007-08, that must be for 2008 onwards. When the regional boards make their recommendations to the department, perhaps the Minister could announce how the additional £35 million is being allocated, and how much of it is being taken up by the RSLs.
	I welcome the Minister's assurance that the flexibility of the definition in this order is sufficientto allow RSLs to make provision for the accommodation of Gypsies who may be coming from either bricks-and-mortar dwellings or sites. As the Minister will be aware, both Roman Gypsies and Irish Travellers have a strong sense of family cohesion, and there may well be cases of extended families which have been split up as a result of some of them having been evicted and, because of force majeure, having accepted accommodation in housing while others remain on sites. Such families would like to be reunited under the auspices of one or other of these schemes.
	I also welcome the Minister's assurance that the department will continue to try to find a solution for the Olympic sites—although this is not strictly relevant to the order because, as I understand it, the problem is not who is going to provide the sites but where the planning permission can most suitably be granted. It is a test case because, as I said, we have lost 76 pitches in the past 10 years, something to which the London Gypsy and Traveller group referred. If we cannot get this right, when there is plenty of money available with all the agencies involved, it does not inspire confidence in the success of the rest of the programme.
	However, it will be useful to have the Government's plans on record. It is important that we keep everybody informed—not just the Gypsies and Travellers, but the several communities where unauthorised encampments have led to friction in the past. I welcome the Minister's assurances and beg leave to withdraw the Motion.

Motion, by leave, withdrawn.

Local Probation Boards (Appointment and Miscellaneous Provisions) (Amendment) Regulations 2006

Baroness Anelay of St Johns: rose to move, That this House regrets the proposals set out in theLocal Probation Boards (Appointment and Miscellaneous Provisions) (Amendment) Regulations 2006 (S.I. 2006/2664) and calls upon Her Majesty's Government to withdraw the statutory instrument and to enable consideration of the proposals contained in it by each House of Parliament in the context of primary legislation on the management of offenders [46th Report from the Merits Committee].

Baroness Anelay of St Johns: My Lords, I do not support the proposals that the Government have set out in the local probation boards SI. It would be better for our criminal justice system if the Government withdrew them today so that both Houses can debate them constructively and effectively within the context of our forthcoming scrutiny of the Management of Offenders and Sentencing Bill.
	These regulations are due to come into force on1 November—well, they have. That shows a measure of the problem for this House in scrutinising legislation and negative instruments when they are already law. They will significantly change the membership and governance of the 42 local probation boards in England and Wales. Yet when the Explanatory Memorandum to the statutory instrument was first published, it was opaque to the extent that it was misleading. That was poor practice.
	The report of the Merits of Statutory Instruments Committee states that the memorandum gave no adequate explanation for the changes or how they would affect the rehabilitation of offenders and the service provided to the community. The committee therefore asked for better information. It is only as a result of their work that we have been provided with the supplementary information given by the Home Office to the committee. As a result of scrutinising that, I still do not believe that the Home Office has yet made a case for the regulations before us today.
	The boards are a comparatively recent innovation, established by the Criminal Justice and Court Services Act 2000. Yet the Government now wish to rip them up and start again, without even carrying out any evaluation of the existing governance, as far as I can see. If they have, where is it? Why has Parliament not been allowed to see it?
	In addition, there has been no formal public consultation exercise. Why? Because the Home Office says:
	"we did not consider that one was required for this Statutory Instrument".
	The Home Office was wrong. They should have carried out an effective consultation on what constitutes a significant policy change.
	Why make these changes now? If the Government intend to abolish the boards anyway as part of the National Offender Management Service Bill reorganisation, why not wait until that has been properly scrutinised by Parliament. What are they afraid of that makes them act with this haste?
	At present, each probation board has up to15 members comprising a chair, the chief officer, a judge appointed by the Lord Chancellor, and 12 other members, of whom four, where practicable, should be magistrates and two elected members of a local authority. The quorum is seven. They were created to provide local accountability through the agreementof strategic objectives and the monitoring of performance.
	The regulations make three main changes, all of which are unnecessary and will damage the quality of work carried out by the boards. First, the quorum will be reduced to five, allowing smaller boards to beput in place. Since 2001, probation has beenmoving towards increased local involvement with communities and the boards have drawn membership from a wide cross-section of the population. That has been beneficial. Therefore, it is obvious that if the Government now reduce that representation that must have a negative effect on the level and scope of local involvement.
	The Government say that the new boards will be seen as businesses. What exactly do they meanby this? Many current members have extensive experience in private sector business, but they recognise that while they must run their services in a business-like fashion, when it comes to running a justice agency, many decisions are simply not primarily business decisions.
	Secondly, it is intended that it will no longer be necessary for four members to be magistrates, but the primary customer of the service is the local courts, so that is also a retrograde step. Magistrates sentence on behalf of very local populations. I note that the Magistrates' Association is opposed to that change. I have read the letter that John Thornhill, chairman of the Judicial Policy and Practice Committee, sentto Richard Cullen at the National Probation Directorate. Mr Thornhill wrote:
	"we are all dismayed at the suggested changes to the SI and bewildered at the suggestion within the context of stressing how much magistrate membership of Probation Boards is welcomed and valued".
	Thirdly, it is intended that two local authority members will no longer be necessary. Partnerships with the local police and local authority are at the heart of modern probation practice. It is increasingly necessary for close liaison, joint funding and joint planning through local area agreements. So it is not surprising that that change is opposed by the Local Government Association. Councillor Hazel Harding, chair of the LGA Safer Communities Board, wrote to Mr Cullen to express its opposition to it. She points out:
	"Councillor members of Probation Boards are essential because they provide local accountability and strengthen partnership working, as well as bringing a range of skills from their experiences as councillors and their diverse professional backgrounds...Removing the requirement for councillor representation on local Probation Boards runs contrary to the recognition given by other parts of the HO of the need for local political leadership on crime and disorder matters".
	We have just witnessed that very focus from the Home Office in our discussion of the Police and Justice Bill, which has now successfully gone through this House. There, the Government drew back from some changes. They have reinstated magistrates as of right on police authorities and, at the request of the Association of Police Authorities, retained the authority of police authorities to make their own appointments. So there is recognition in other parts of the Home Office of the value of magistrates, local authorities and local councillors, yet here, we see the reverse happening.
	The regulations will weaken local involvement in criminal justice, begin the process of centralising probation governance on Whitehall and remove the critical local partners on whom effective work with offenders depends. It will do all that even before Parliament has the chance to consider the proposals in the NOMS Bill—a rather inelegant title—which we expect to be published by the end of this month. It is wrong of the Government to take action to pre-empt that debate. The Government should think again. They should withdraw the order, engage in proper consultation, and listen to the views of Parliament when we debate the legislation in November, December, or whenever it reaches Parliament. Then and only then should they bring forward proposals to alter the structure and character of probation boards. I beg to move.
	Moved, That this House regrets the proposals set out in the Local Probation Boards (Appointment and Miscellaneous Provisions) (Amendment) Regulations 2006 (S.I. 2006/2664) and calls upon Her Majesty's Government to withdraw the statutory instrument and to enable consideration of the proposals contained in it by each House of Parliament in the context of primary legislation on the management of offenders [46th Report from the Merits Committee].—(Baroness Anelay of St Johns.)

Lord Avebury: My Lords, this is the second time within a week that proposals have been put before us that have been introduced with minimal consultation that is far short of what is required by the Cabinet Office code of practice on consultation.
	The National Probation Directorate said in its response to the Merits Committee's questions on the subject that it did not think that a formal public consultation was required, but it consulted informally a number of boards and board members. It does not appear to have consulted the Probation Boards' Association, the Magistrates' Association, the Local Government Association, NACRO and any other major organisation that is concerned with probation and its future. The Probation Boards' Association has said that the regulations,
	"will weaken local involvement in criminal justice, begin the process of centralising probation governance on Whitehall and remove the critical local partners on whom effective work with offenders depends".
	When the Government know that proposals they are going to introduce are controversial, it is only too easy for them to avoid criticism by picking a few consultees who can be cajoled into giving the right answers, while ignoring the leading players. I therefore suggest that there should be Cabinet Office guidance on these pseudo-consultations to ensure that the department at least asks for the official views of the organisations representing the persons or bodies principally concerned. I would be grateful if that suggestion could be referred to the Cabinet Office for its consideration and advice.
	As a result of the useful work done by the Merits Committee, we now see more clearly what the real purpose of this exercise is. The Government pretend that they are offering greater flexibility, but this isin fact a preparatory step towards forthcoming legislation—the "nightmare on Marshall Street" legislation, which the noble Baroness, Lady Anelay, mentioned—under which boards are to be compelled to contract out 10 per cent of their services in 2007-08 and an increasing proportion in later years. Ultimately, programmes for the rehabilitation of offenders, including drug rehabilitation but not, apparently, alcohol rehabilitation, amounting to£250 million a year—about a third of their total expenditure—will all be farmed out, leaving the boards with direct responsibility for managing high-risk offenders in the community.
	Mr Harry Fletcher pointed out to me this morning that the distinction between high, medium and low-risk offenders is artificial because, although 35,000 out of the 50,000 offenders under supervision at any time are classified as low-risk, this low-risk group accounts for about 80 per cent of repeat offenders. I was reminded of the work of Professor Jean Floud many years ago on dangerousness, in which she found that there was no reliable scientific method of predicting the propensity to commit serious offences. Giving the easy cases to the private contractors and leaving a core probation service to deal with the hard ones simply will not work, because so many of the offenders will need constantly to be transferred between one category and another.
	The argument behind the order is that the boards will need expertise primarily in commissioning and contracting out the services, and that they will not need to have much of a clue about how to deal with low-risk offenders. However, they will still need to cope with the 1,500 high-risk offenders, and—perhaps the Minister can confirm this—with the 13,000 offenders who are classified as medium-risk. Presumably, whenever a low-risk client commits a serious offence, his case will be taken from the private contractor and given back to the probation service. However these matters are to be dealt with, it is hard to see how the boards will discharge their functions if they are composed entirely of businessmen—I take it that they will be mostly men—without experience of the criminal justice system or, indeed, of the mental health or local authority services. Nor is it clear from the response to the Merits Committee who, underthe new system, will have responsibility for the rehabilitation of offenders with alcohol problems, and it would be helpful if the Minister could say something about that when he replies.
	We are not against the proposition that requiring four members of the board to be magistrates may be too prescriptive, but we note the Government's apology for saying in the Explanatory Memorandum that there was substantial evidence that many magistrates and local authority members did not possess business skills. That is entirely in order because there was no evidence for this lack of skills among magistrates. I certainly hope that, as a result of this order, boards will not lose all knowledge of the criminal justice system now available to them from their magistrate members. That point has been made forcefully by NACRO, which is also among the bodies with which the Government did not bother to consult.
	Eliminating the requirement that two members should be local councillors is opposed by practically everyone I can think of, including the Probation Boards' Association and the LGA. They point out that partnerships with the local authority and the police are at the heart of modern probation practice and are necessary for close liaison, joint funding and joint planning through local area agreements. NACRO says that the probation service needs to be closely linked with housing and education, since they are both crucial to the resettlement of offenders and the reduction of reoffending. The direct input from local authority representatives on the boards is a valuable way to ensure that these connections are strong and productive, and that probation services complement and reinforce the activities of local authorities in reducing crime. Napo has been told that it will no longer be necessary even for a member to live within the probation area, let alone be a member of the local authority.
	We view with apprehension the upheaval which will ultimately sweep away the National Probation Service with the introduction of commissioning and contestability at regional level, of which this order is a precursor. We agree with the noble Baroness,Lady Anelay, that separating consideration of the composition of the probation boards from the foreshadowed primary legislation is wrong in principle. It deprives Parliament of its right to amend the proposals to reverse the damaging loss of the ties between the boards on the one hand, and the magistracy and local authorities on the other, while approving the greater flexibility of appointment periods and a reduction perhaps of the quorum, although I noted that the noble Baroness was not in favour of that either.
	We agree also with Napo that moving towards a regional or national model will undermine the public protection work undertaken with partners in the courts, the police, health services, particularly mental health, sentencers and the voluntary sectors. We have not been able to identify a single organisation which is in favour of the upheaval that the Government are planning to inflict on the probation service, apart from the incumbent of No. 10, who will be leaving shortly—we hope. Is it too much to hope that with a regime change in the offing, there could be a moratorium on the harmful changes coming down the track for the probation service and that, as a sign of hope for the future, this order will now be withdrawn?

Viscount Tenby: My Lords, if a week is a long time in politics, a fortnight can prove to be an eternity. Only a fortnight ago, I expressed my unreserved thanks to the Minister, who sadly is not in her place today, to which she characteristically and generously responded, for saving that endangered species—the magistrate—from exclusion from police authorities. How quickly time passes. Now I find myself adding my voice to echo the concerns, which were so ably detailed by the noble Baroness, Lady Anelay of St Johns, and the noble Lord, Lord Avebury, about the effect of these new regulations, again in so far as they will apply to the magistracy. I should declare that the Magistrates' Association is of course against them.
	Although I totally absolve the Minister from what I now have to say, the probation service has been the whipping boy of Governments of whatever colour over recent years. I recall the theory prevalent in some quarters not so long ago that shortages in the probation service could easily be filled by recruiting ex-warrant officers and the like from the Armed Forces, because it was a task to which they were well suited because of their experiences there.
	Next came the wheeze—I think that that is the right word—of denying probation officers the chance to study for a degree because such high aspirations were deemed to be unnecessary for such a humble calling. Indeed, I remember being part of a delegation to the then Home Secretary headed by a distinguished former head of the Home Office, my noble friend Lord Allen of Abbeydale, who is sadly unable to be here today, where we managed to achieve a smart turnabout in government policy on this issue.
	I apologise for a slightly extended preface, but the remainder of my remarks will be brief. I am sure that the Minister would rightly affirm that he has nothing but praise for the laudable achievements of the probation service. From my experience as a magistrate for 27 years, I can say only that I valued its contribution to my work immensely and can think of only a minuscule number of times when I disagreed with what it had to say. However, in my view these proposals will be damaging to that capability and will be unlikely to succeed in their objective of securing seamless offender management and disposal.
	There is also much evidence that the consultation process—as I regret is so often the case nowadays—has been inadequate. It is also not entirely clear on what evidence the various assumptions in the original Home Office paper were made. The removal of magistrates and local government representatives from the boards some two years ahead of the establishment of the trusts is not a fully thought-out initiative, particularly in view of the appointment of so many new probation board chairs in the new year. Surely what the newcomers will want as they settle in will be know-how and experience to guide them through areas with which they may well be unfamiliar. Casting all that expertise aside at this time and in what I can only call such a sneaky way will be counterproductive in the end and make this very much more difficult.
	I am also concerned that what is now an integrated system will be split into a number of unconnected operations. To cite an example, nowadays a sentence can contain several different requirements such as a curfew, supervision and perhaps even a course of treatment for anger management. Is it the case that each of these separate but closely linked requirements could become the responsibility of three separate enforcement bodies in the future? If so, there is more than an even chance of bureaucratic muddle and confusion lying ahead.
	Finally, I have to say that the additional costs involved in these ill advised changes would be far better deployed at the coalface where they are very much needed, and would present a far better chance for securing the reduction in reoffending targets which this Government very properly seek but I fear will not get with these proposals.

Viscount Eccles: My Lords, being a member of the Merits Committee of your Lordships' House provides a special interest in statutory instrument practice. If, in a somewhat technical way, I go beyond the comment made in the committee's 46th report,those views are my own. We have before usStatutory Instrument 2664, with its Explanatory Memorandum, along with the department's letter set out in the 46th report, and now we have the draft of an amended Explanatory Memorandum, as promised in the department's letter. I will concentrate on board membership, the terms of appointment and the change from seven to five for a quorum.
	As always, we are involved in a paper chase. Asmy noble friend Lady Anelay said, Schedule 1 to the 2000 Act confers the power to regulate and sets the minimum board membership at seven. Shortly after the Act came into force, Regulation 2 of Statutory Instrument 2000/3742 stated:
	"A local probation board shall have a maximum of15 members".
	That is the position today, and it is not proposed to change it in the statutory instrument we are considering. As the department tells us, most boards operate at 15 members.
	What is to be changed is the composition of the boards. The four local magistrates and the two local authority members, as we have been told, who have taken six places out of 15 as a result of Regulation 5(2) of 2000, are to go. No convincing explanation is given for this change. Indeed, the latest version of the Explanatory Memorandum states that the changes to be made will mean that,
	"boards can be more effective in addressing local circumstances".
	Is it really suggested that magistrates and local authority members do not understand local circumstances? Although at first it was said that magistrates did not have the modern skills needed—what an abused, Humpty-Dumpty word is "modern"—this was rapidly withdrawn. Nor can anyone argue that there is not room within a board of 15 to include business acumen, human resource experience and knowledge of finance, diversity and competition, curiously angled and incomplete though this department list is.
	As there has been no consultation and we do not have an ex-post evaluation of the six years of the boards working under the Act, we can only speculate as to the true reasons for the proposed change. Is it just a dislike of magistrates? Most probably so. No doubt the Minister will tell the House. When he does so, will he also tell your Lordships why there is no reference to the work of Her Majesty's Inspectorate of Probation?
	We are also told that there are "sleeping" members of the 42 boards who,
	"make up weight for the quorum",
	as if to say in a board of 15 only seven can be expected to turn up—two of whom, with the chairman's permission, may sleep. Indeed, the department says that most boards struggle to achieve a quorum of seven. This is given as the reason for reducing the quorum to five. What evidence does the department have for this most serious governance assertion? Has it been taken up with board chairmen and what has been their response?
	There is also the matter of the terms of board appointment. Regulation 6 of Statutory Instrument 2000/3342 states:
	"A member of a local probation board shall be appointed for a term of three years and shall be eligible for"—
	one—
	"reappointment".
	This is to be changed by Statutory Instrument 2006/2664 to,
	"a term not exceeding three years".
	This means that a board member has no security of tenure whatever. What is the reason for this change? If, as has been said, it is to pre-empt Parliament because of intended legislation, that really will not do. If it is to change public appointments practice so that board members are wholly at the mercy of the Secretary of State, this is completely at odds with repeated assurances that bodies such as local probation boards are to be strong and independent. How can anyone be strong and independent if they have to keep looking over their shoulder, given the arbitrary power conferred on the Secretary of State?
	The practice followed to date has not been in accordance with the Government's declared policies for better or less regulation. The Minister needs to withdraw this instrument and think again. Second thoughts this afternoon are not enough.

Lord Ramsbotham: My Lords, I join the other Members of the House who have spoken following the very competent and comprehensive outline of the reasons for this Motion given by the noble Baroness, Lady Anelay. Three words spring to mind when thinking about this problem—"perverse", "shoddy" and "unnecessary". Those three words were emphasised by the fact that when I collected this piece of paper from the Printed Paper Office, I found that it cost £3. I was extremely glad that I was entitled to a free copy. I am not surprised that the Merits of Statutory Instruments Committee said that it required more explanation than the very thin Explanatory Note included in the instrument.
	If I were the Minister responsible for the National Probation Service, I should be seriously alarmed about the various measures that I and my Government had been involved with since 1997 which have seriously undermined the morale of that service.
	The service started life 100 years ago. Its raison d'être was very much the aftercare of offenders in the community; now it is told that its first priority is punishment. It was told that it was going to be a national service; then it was told that it was going to be merged with the Prison Service; then it was told that it was going back to being a county service; then it was told that it was going to be a regional service; and then it was told that parts of it were going to be privatised. It really does not know whether it is coming or going.
	Other Members have spoken of various changes that have happened in the service, such as the disastrous reduction in training, of which the service was justly proud. Giving a university basis to the education of probation officers meant that they understood probation in the broad, not just in the narrow. Therefore, announcing in 2001 boards which are structured to link with and contain members from the community with which the service is working was welcomed within the service. That has been dashed, and now Ministers wish to see a change in competencies, human resources, finance, diversity and competition. That has nothing to do with the management of offenders; it is all to do with the management of the management of offenders, which is totally different.
	The guts of the proposal are contained in the intention of the Secretary of State to deliver probation services himself. That does not seem sensible, which is where "perverse" comes in. Thedrift of where the Government say they wantthe management of offenders to go is into the community. Youth offending teams, which the Government formed and which are a success, are run by local government. They include representatives of all the agencies which can deal with offenders. Why, then, suggest that you should take away from the governance of probation the very people who are looking after young offenders? At the same time, Green and White Papers are delegating responsibility to local government for looking after child and youth matters. Why not the probation service as well?
	If I were a member of the Home Office, I should be alarmed that a thin piece of paper such as this was going out in my name. Having been accused of being dysfunctional by my Secretary of State, I ought to do everything possible to dispel that image, and get myself thought of as someone who could think things through. Yet a statutory instrument is coming out before a Bill in which the whole subject of which it is a part is to be discussed. I can think of nothing more inappropriate to be brought before this House. It is extraordinary that it should be rushed through at this time, without consultation or due consideration. Therefore, I agree entirely with the noble Baroness that the regulations should be withdrawn as quickly as possible.

Baroness Stern: My Lords, I support the noble Baroness, Lady Anelay, wholeheartedly and am very grateful for the interventions of the noble Viscount, Lord Eccles, and all the other speakers. This measure seems to be based on a profound misunderstanding of what makes probation successful. The Government's policies on probation have slowly but inexorably moved it away from its base in local communities and diminished its relationship with the magistrates' courts, yet those two relationships are crucial for its success. It is important to remember what probation has to offer to those whom it aims to supervise, control and reintegrate into society. It actually has nothing to offer except for its skills, persuasiveness and contacts. It cannot provide someone with a GP or a roof over their head; it is not an education provider and it cannot give anyone a job. It does not have the resources to sort out a family problem—that is the job of social services. It has no mental health or drug treatment.
	Rightly, those services are all provided by various local agencies, most by the local authorities and some by the health service. Some are obtainable only through good local knowledge and local connections. Without that local knowledge, those local connections and some local legitimacy at a time when resources are under pressure, probation officers can do nothing for those whom they supervise except listen to them, advise them, assess their risk and redirect them elsewhere for what they really need.
	Similarly, there is the relationship with the magistrates' courts, which is even more extraordinary. The relationship between the probation service and the courts is crucial; it has to be one of considerable trust, built up over time. Never has it been more important—and I am sure that the Home Office understands this—that probation officers should be able to make recommendations for community sentences that the courts have confidence in. How else are the Government going to deal with the massive overuse of prisons?
	Over the years, the magistrates on probation boards have been vital supporters of probation and made its case with their colleagues on the Bench. They have been supporters of the probation service in the wider community. Magistrates are respected figures in local communities, with considerable legitimacy. How will a probation board with no magistrates or local authority representatives establish the relationships that it needs?
	There are other issues of legitimacy and propriety. Probation officers exercise considerable powers over the liberty of the subject. They can recall someone to prison on their own initiative. The person can stay there for weeks or even months before the Parole Board gets round to looking at the case, because, as I understand it, the Parole Board is swamped with such cases. Should these powers be exercised by a body whose governance contains no judicial persons—unless the Minister tells me that judges are to continue to sit on boards, even when they have begun to be described as businesses?
	Finally, I echo other speakers in asking: is it appropriate that this order is being debated on a Friday afternoon by this process? It is a vital matter of the governance of an organisation that last year spent £0.9 billion on its work and it is of considerable importance to whether or not people can live safely in their communities. Should such changes not be debated properly by Parliament? Is this not rather an unacceptable way in which to sneak in somechanges? I wondered whether the word "sneak" was appropriate to use in this House but, having heard it used by my noble friend Lord Tenby, I am sure that it is. Surely this is a sneaky way for the Government to try to get through a part of a much larger plan, for which we have not yet seen the legislation.
	I hope the Government take note of the strengthof feeling expressed here and the opposition of the Magistrates' Association, the Local Government Association and all organisations that know anything of how the probation service works to make our society safer. I hope that the Government will reflect on the damage that they are doing here today, or that they did on 1 November. I support the Motion of the noble Baroness, Lady Anelay.

The Earl of Erroll: My Lords, I rise briefly because I am concerned by this clear breach of the expected procedures on consultation and so on that we are clearly seeing here. That breeds a lack of trust in the bona fides of a few, but very powerful, people in the Executive. The trouble is that we then have to reflect on other legislation that is being passed. How can we believe the assurances that we are given, that what we are told is what will actually happen, when we hand over to the Executive huge amounts of power to make the rules that will control citizens' lives?
	In legislation that has recently gone through in statutory instruments, I have had discussions with other branches of the Home Office. They have given lots of assurances that they will not abuse some quite loosely worded powers that they are taking. Can I now trust those assurances?
	I have always said I was worried about passing legislation that could be abused five or 10 years down the road. I think we have done that recently in some statutory instruments. Looking at the behaviour today, we were probably wrong to trust the Executive last week and the week before. That concerns me hugely.
	The other minor point is the use of the word "risk". There is a huge risk that these people will reoffend. Or are they talking about the risk of danger to the life and limb of the public? In this case, they should be talking about categories of "dangerousness", not of risk.
	I would have thought it was almost time to send a signal to the Executive, to tell them they cannot get away with this sort of behaviour. If they wish to divide the House, I think we should throw the statutory instrument out for rethinking. Perhaps that is going a little far, as the usual channels will hate it, but maybe they should be shown a signal too.

Baroness Thomas of Walliswood: My Lords, as a former member of a probation board committee and subsequently of a probation board, I suppose I ought to declare an interest, although my service is quite a long way behind me now. I had not really intended to speak, but I want to emphasise my absolute support for the speeches that have come before.
	It is extraordinary to suggest, at this point of the legislative procedure—or at any time—that the membership of, for example, magistrates on probation boards is not essential. The magistrates are able to explain to the many members of the boards how the magistracy works, how it is trained, how it sentences and what the interaction is between the probation service that we are running and the magistrates who are receiving our services. One ofthe recipients of the services of the probation service is of course the magistrates' court.
	There has already been an enormous amount of change in the service, and several people have spoken of that already. The only thing that really matters in the probation service is the probation officers. They are the key to the success of the service. You cannot keep on reorganising, refocusing, re-reorganising and re-refocusing those small bodies of people upon whom the delivery of an essential service depends.
	I draw the attention of the House to item 8 in the paper, which says,
	"A Regulatory Impact Assessment has not been prepared for this instrument as it has no impact on business, charities or voluntary bodies ... The impact of this Order is purely internal to the Probation Service so there is no further impact on the public sector".
	We have been hearing a great deal about the collaborative nature of the work of the probation service in the whole context of the delivery of local government, and I know quite a lot about it myself. Those two sentences show how very little the Home Office seems to understand its own service.

Lord Bassam of Brighton: My Lords, I am grateful for the attention and interest that the issue has aroused in your Lordships' House. I thank all those who have contributed to the debate. I felt as if we were debating a Bill that has yet to be announced and is probably yet to be drafted; it has certainly not yet seen the light of day. However, it is anxiously anticipated. We shall probably debate at length many of the issues that were raised when and if—many of your Lordships expect that this will happen—a Bill on the National Offender Management Service is introduced.
	I shall try to restrict my comments to the matter before us and to the Motion that the noble Baroness, Lady Anelay, has properly brought forward for our consideration. Everybody who contributed to the debate was aware that the regulations were subject to comments in the 46th report of the Merits of Statutory Instruments Committee, which was published last week. Before I explain the background to the regulations, I express my sincere apologies that the standard of the Explanatory Memorandum fell below that expected by the committee, and that it did not contain sufficient background detail. I apologise unreservedly for that. The Home Office has taken steps to remedy that and has put more information in an expanded memorandum. I hope that those who have had the opportunity to study it consider that the extra information is valuable. It was certainly intended to be. It was not in any way the Home Office's intention to show disrespect to the Merits of Statutory Instruments Committee or to sell people short, as it were, in providing the information that was properly required.
	That said, it is important to put the regulations in context. The purpose of the amendments is to ensure that from 1 April 2007 the regulations governing the membership of probation boards match the competencies and skills that will be required for boards to deliver in an environment of public value partnerships, mixed economy and competition. They amend the period for which a board chair or member can be appointed from three years to a period not exceeding three years and reduce the number of board members required for a local probation board meeting to be quorate.
	While this statutory instrument does not seek to pre-empt any future legislation in respect of the National Offender Management Service, it seeks to ensure that boards have the skills they require to operate in the current increasingly complexand competitive environment. Although these amendments have the advantage of preparing probation boards for the transition to the envisaged probation trusts, we obviously wish to address immediate improvements in performance through the regulations.
	The recently published Public Value Partnerships document requires probation boards to focus on public protection and the management of high-risk offenders. As part of this strategy, boards will be required to increase their level of subcontracting to10 per cent in 2007-08. That means that boardswill require extra expertise on purchasing and commissioning standards. It is essential that boards are able to fulfil that function successfully. Skills in business acumen will ensure that boards have the necessary expertise to move forward confidently to meet future expectations and challenges.
	I do not think that should simply be read as meaning that we want those boards to be just like a business; that is not the intention. What we are after is adding something to the current range of skills that are quite properly contained in those boards. We certainly acknowledge that the boards have performed well; but in this era of expanded commissioning and the development of a more mixed economy in terms of service provision, added acumen must be an important feature of those boards.
	Each House of Parliament will, of course, have the opportunity fully to consider primary legislation in the proposed Bill relating to the National Offender Management Service and the future of probation boards. The proposed legislation will create probation trusts, which will be public sector providers subject to competition and contestability. Should legislation be successfully passed, the Government do not envisage a "big bang" move to probation trusts, but a phased approach over a period of years. The regulations address the period from 1 April 2007, with, at the earliest, some boards converting to trusts in 2008. That change is obviously reliant on legislation, but it is seen as part of a longer-term process. The regulations will allow boards to develop their skills and expertise, not just to meet the requirement of the Public Value Partnerships document, but to allow them to be effective public sector providers in a future of mixed economy, commissioning and contestability.
	I will give noble Lords some brief background to why we seek to make the changes. When the statutory instruments governing the formation of probation boards were written in 2000 and 2001, they took into account the previous funding arrangements between central and local government, and they were intended to be a bridge between what had gone before and the new wholly centrally funded boards. It was therefore decided that each board would, where practicable, have four magistrate members and two local councillors. I wish the House to be quite clear that the regulation in respect of magistrate and councillor members does not minimise the value that we place on their contribution to probation boards. It is clear that each board will wish to retain magistrate and councillor members wherever possible, but we also need to ensure that they bring with them an understanding of the needs of greater business sensitivity to improve the performance of the probation service.
	Why are we seeking to introduce these regulations now? Board chairs and members are appointed to hold office for a maximum of two three-year terms, and thus a substantial number of chairs and board members who were appointed in 2001 will come to the end of their terms of office on 31 March 2007, and a major campaign is under way to recruit their replacements. The regulations allow flexibility in the length of appointment of up to three years, rather than a fixed period of three years. When this recruitment exercise was initially discussed, several boards identified an opportunity to reduce the quorum of board meetings, leading to smaller, more effective boards. Legislation requires that probation boards have a membership of between seven and15 members. Some 36 of the 42 boards have opted to reduce the number of board members, and that is most easily achieved if we reduce the present quorum of board meetings from seven to five. It is a positive message that local boards want smaller boards anda reduced quorum at meetings. Now, with the recruitment campaign under way, this is the right opportunity and environment in which to make the changes outlined in the regulations.
	To facilitate the preferred reduction in the size of boards, we need to rebalance the board profile. In addition to the chair, the chief officer and the judge appointed by the Department for Constitutional Affairs, the board would lack balance if it were to maintain the block of four magistrate and two councillor members. This inflexibility regarding membership creates a lack of local choice. A number of Members have already referred to the importance of partnership, and we place a very heavy reliance on that because we see it as having great value. We believe in the importance of local choice; and that is what we want to ensure in the future.
	With no reduction in the current arrangement, there would be a board of nine—the chair, the chief officer, the judge, four magistrates and two councillors—and if a board wanted to reduce its total membership from 15 to, say, 12, that would allow for only three lay members. We do not think that such a position is sustainable, as we feel that boards need to have a more balanced and broader membership.
	We entirely accept the argument made by a number of noble Lords about the value of rooting probation boards in local communities, and we have sought to retain and enhance localism in the current recruitment campaign. The local response to the campaign has been excellent, with more than 3,000 applications, and the interview process is now under way. As part of the recruitment process, Ministers and officials specifically wrote to, among others, MPs, the Local Government Association and the Magistrates' Association, encouraging locally based individuals to apply for board membership.
	These regulations meet the needs of today's probation boards and will allow them to be more effective and responsive, providing them with more local discretion and the ability to meet more closely local circumstances and needs. We consider the regulations as essential to the development of probation boards, and that is why we wish to introduce them now, thus allowing the challenges to be met in the interim period between now and the introduction of probation trusts.
	I listened very closely to what was said about the value of the local magistracy and local councillors. I assure the House that we do not in any way devalue the contribution that those members make to the work of probation boards. It is not our intention to force them out and eliminate their representation on boards. I was an elected member of a local authority for some 16 years and I know the value that local councillors can add to other local services. Indeed, I think that over a considerable number of years my authority regularly appointed members to probation boards, and many of them were, as ever, involved in the work of the magistracy. I know, too, from my work in local crime and disorder reduction partnerships that a broad mix of people has to be involved in the localist aspect of criminal justice. I bring that flavour to this debate, and I know that it is a view much shared by Ministers in the Home Office.
	Noble Lords made a number of specific points and raised concerns. The noble Lord, Lord Avebury, was concerned about the position of alcohol services. That will be the subject of contestability withinthe new arrangements, as with many of the other probation programmes. However, I think that the noble Lord was probably more generally concerned about outsourcing. As is the case now, there will be a variety of providers, from which I think the service is benefiting, so that expertise can be focused on the service that is required. That is one reason why, in a nutshell, we need a broader range of membership on the boards. We need to develop the ability to manage contracts and ensure effective supervision of the different providers.
	The noble Lord, Lord Ramsbotham, was, as ever, very concerned about morale in the service—a matter that he has raised in connection with other services, not least the Prison Service and the Prison Service inspectorate in recent weeks. It is obviously an important issue. It is worth saying that, as we have been in government since 1997, we have put significant funds into the probation service and there has been a large increase in the number of people employed in it. The statistics that I have tell me that the number of those employed has risen by some51 per cent. When we came into government, I remember hearing much criticism of the previous Government over the way in which it was thought that the probation service had been run down. I make no comment other than that. It was during the previous Government's time that the ability to fund trainees on degree courses was taken away.
	I know that Paul Boateng, one of our early Ministers for the probation service and prisons, reinstated that in 1997. The attrition of probation staff—the rate of turnover—is much lower in comparison with other areas of public service. Our feedback shows that the service is developing well; it is responding to different pressures within the criminal justice system; and it is meeting those challenges with confidence.
	There was some criticism of the consultation process that was conducted prior to this statutory instrument. I willingly place in the public domain and confirm points made by the noble Baroness, Lady Anelay, and the noble Lord, Lord Avebury, and others that there was no formal public consultation exercise because we did not consider that one was required for this statutory instrument. That is not to say that we do not recognise the importance of consultation, because we do. However, we have consulted informally with a number of probation boards and probation members. We have sent correspondence to local authorities, to the Local Government Association, the Magistrates' Association and the Probation Boards' Association, in which we clearly trailed and explained the changes and actively encouraged councillors and magistrates during the application process to apply for positions as members of boards as part of the continuing recruitment exercise.

Lord Avebury: My Lords, on consultations, could the Minister answer my question about whether the Government will refer to the Cabinet Office to see whether a set of rules can be devised to cope with instances, such as this one, where a full consultation is not considered necessary? At least there could be reference to the heads of organisations whose members are principally affected by the changes proposed.

Lord Bassam of Brighton: My Lords, I was about to say that I thought the noble Lord had raised a very valid point. I had jotted that down in my notes. There would be some value in me referring the issue to the Cabinet Office. I know it is quite properly concerned about the way in which consultation operates across government. That point is very valid and I shall refer it forward. We need to give it some further thought.
	I have explained the recruitment process. As I understand it, the current exercise is to replace the30 board chairs and around 300 board members who complete the second of their three-year terms on31 March next year. That exercise should ensure that a broad range of interests is represented on the boards; that we have the proper focus on business continuity; that we bring in that added element to the board's range of expertise; that we reflect on the value of the current magistrates' appointments and counter-appointments; and that that experience is part of the broader board membership.
	The overall aim is simply to achieve a rebalance while retaining in membership those with sentencing and other valuable local experience. That is a very important strength. Early indications on the recruitment exercise are that a large number of councillors and magistrates have applied to be board chairs and members. The early sifting reveals an apparently very high standard of applicant. We should take great heart from that.
	I know "modernisation" is a word that many noble Lords do not greatly love, but this is a programme of modernisation and reform of public service and the probation service is part of that. It will require more partnership working and a greater familiarity with competitive and business environments within which they operate and skills in commissioning and contestability. By rebalancing the membership of the boards, improving their range of skills and competencies, we think we will improve the delivery of probation services. I would have thought that we could all sign up to that in order to prepare the service better for the challenges that it faces.
	I understand the concerns that have been raised. We shall reflect on the voices raised on all sides of your Lordships' House where a diverse group of noble Lords has been present today. The concerns and issues that have been raised will surface again when we debate the fundamentals of what is likely to be in the next legislative programme. I place on record my thanks to noble Lords who contributed to this debate and our thanks for the contributions of noble Lords who serve on the Merits Committee, take an interest in the probation service and are as passionate as I and our Ministers are to ensure that standards within the service continue to improve.

Baroness Anelay of St Johns: My Lords, as always, I begin by thanking the Minister for setting out the Government's stall. During this debate, he will have felt that there was a signal lack of support for him in the Chamber. There is strength of feeling, and it was expressed with military succinctness by the noble Lord, Lord Ramsbotham, who said that the regulations are "perverse, shoddy and unnecessary". The noble Baroness, Lady Stern, who has professional expertise in these matters, said thatthe regulations were based on a profound misunderstanding of what makes probation services successful. I agree with the noble Lord and the noble Baroness. There was concern about the lack of formal consultation. All noble Lords echoed the belief that magistrates and councillors are of such value that they ought to be on probation boards rather than the vague "maybe, maybe not". Such people bring local experience to the criminal justice system and probation boards will be much poorer without them. We also focused on the issue of time.
	While the debate was going on, I reflected on the procedure with regard to statutory instruments, which was raised by the noble Earl, Lord Erroll, and by my noble friend Lord Eccles. This instrument was subject to the negative resolution procedure. When primary legislation goes through the House, we anticipate that the negative resolution procedure will be reserved for essentially non-controversial matters, technical matters or matters that been fully rehearsed in the legislation upon which they hang. Therefore, it can be said that when the House passes primary legislation it gives permission for what will follow that is foreseeable at that time. The trouble is that when the Criminal Justice and Court Services Act was passed in 2000, the way in which these regulations are now being used was not foreseen. Therefore, it cannot fairly be said that the House gave its permission then for this kind of development. That throws up what could be a matter of concern in our scrutiny of what should be left to the negative resolution procedure in future legislation. I will be very happy to discuss that with the noble Earl, Lord Erroll, on future occasions.
	The Minister stated the Government's argument about having a flexible board that responds to modern needs. Probation boards are not trying to be inflexible or wilfully to prevent the delivery of effective service. They are trying to deliver an effective service, but the Government are trying to steer them in a different direction by the way in which their membership will be set up. On the size of boards, the Minister said that the Government are trying to add expertise, but they are doing that by removing the right of magistrates and councillors to be on the board. There are a lot of contradictions here.
	I find these regulations extremely unsatisfactory. In Lords' language, that means I wish I could tear them up and throw them out. I have been tempted to do just that by one or two noble Lords who have asked about a Division today. I am not the usual channels, and I do not want to risk their wrath just yet; I would like to live a couple of days beyond the Queen's Speech. Of course, it would be gross discourtesy to the House if I were to call a Division without giving prior warning of so doing, although by doing so, I could perhaps have had even more supporters for my Motion today.
	The serious reason I do not wish to divide the House today is that I take consultation seriously. These matters need to be thoroughly discussed in the context of the new management of offenders Bill, when we ought to see whether the Government's premise today is as flawed as I believe it to be, or whether they can come up with any credible arguments.
	I know that the noble Lord, Lord Avebury, was worried that if we allow these provisions to go through, the door is closed. I looked at the original drafting of the Bill that we saw two long years ago when it drifted through this House briefly at First Reading, received a Second Reading date and was then abandoned by the Government. I am advised that under that original drafting—if we see that Bill back again—we might find a way of tabling an amendment within scope that could rid this place of these regulations. We should be able to give this House a proper opportunity to discuss them then. So, only against that background and my future hope of ripping these provisions up do I leave them not quite in shreds, but beg leave to withdraw the Motion.

Motion, by leave, withdrawn.

NHS: Finance

Lord Rea: rose to ask Her Majesty's Government what proportion of NHS finances are currently spent on the private sector; and what is their estimate of the likely rise or fall of this proportion in the future.
	My Lords, I would like to start by thanking the noble Baronesses, the noble Earl and the noble Lord who put their names down to join this mini-debate on a Friday. I particularly apologise to Front Benchers who, perforce, have had to stay on a Friday. Unfortunately, it was the only slot available to me.
	The increasing role of the private sector in the National Health Service is causing widespread concern, including to all the professional organisations in the NHS. That was expressed strongly at the TUC and Labour Party conferences this year, as well as at Wednesday's lobby of Parliament. I declare an interest as a medical practitioner who spent most of his professional lifetime working for the NHS.
	I expect that my noble friend will express the view of the Secretary of State that the use of the private sector by the NHS is not the same as privatisation of the NHS and that, as long as it is free at the point of contact and financed through central taxation, ithas not been privatised. However, increasing therole of private profit-making organisations—often transatlantic—in delivering services and in the management of the NHS is expensive. The private sector may be useful in shortage areas, though costly, but it is frequently unnecessary and may eventually undermine the integrity and comprehensive nature of the NHS. Like the Secretary of State, my noble friend may think that supping with Mammon is safe if a sufficiently long spoon is used. I wonder.
	Because of time constraints I will concentrate on only two areas—the private finance initiative and independent sector treatment centres. However, I would like briefly to list some other current examples of this increasing trend, such as outsourcing the commissioning function of PCTs, privatising the management of GP services, the unbundling of primary care services, the sale of NHS logistics—to a very doubtful new owner—and privatising oxygen supplies in the community, pathology services and non-emergency ambulance services. Then there is the fiasco of outsourcing the NHS IT system, but I think that that might defeat anybody.
	In the mid 1990s, public sector funding for capital projects became very scarce, and that continued in the first austere years of the present Government. By the time of Labour's success in 1997, the private finance initiative was up and ready to go—and there has been a virtual bonanza of PFI-financed hospital building, which has often been welcomed by patients and clinicians alike. The high cost of the projects has, however, led to the downsizing of the number of beds provided and it has increased the pressure on staff to reduce throughput times, often to a stressful level.
	PFI costs over the whole of a contract will almost certainly be considerably greater than the public service comparator would be. PFI consortia charge a rate of interest well above bank rate on the capital that they raise. This interest represents a significant proportion of NHS finances, paid for by the trust concerned. It should be considered as money diverted to the private sector.
	Andrew Lansley MP obtained Department of Health data giving a sum of £53 billion to be paid by NHS trusts over the next 30 to 40 years for completed PFI projects with a capital value of £8 billion. I would be grateful if the Minister could disaggregate this unitary sum of £53 billion into its component parts. What proportion represents the "availability charge", covering rent, interest on capital, and maintenance? What proportion represents non-clinical service provision of the PFI consortium? I expect that profit is made in all these areas, but this will be difficult to dissect out due to commercial confidentiality. I realise that I am venturing into complex territory, but I also suspect that there is a deliberate tendency to present PFI statistics in an obscure way. The Minister may need to write to me about these details. I have a further question: how often does ownership of the assets revert to the trust at the end of a contract, and how often do the assets remain the property of the PFI operators?
	PFI may have seemed an efficient way to get buildings up and moving quickly, with risk shouldered by the PFI consortium. However, this has been at considerable cost to the financial health of many trusts with large PFI schemes—as the Audit Commission notes in its report Learning the Lessons from Financial Failure in the NHS—and it has been a stone around the neck of the NHS as a whole. I suspect, like the eminent economists whom I have consulted, that the use of PFI has actually been the reverse of prudent. The repayments continue for half a lifetime and will therefore partly fall on the next generation—and, of course, the next few Chancellors.
	The Health Select Committee of another place reported on independent sector treatment centres in July and the Government have recently responded. It is clear that some waiting lists were already falling rapidly before the ISTC scheme got off the ground, largely because of the decision to separate the treatment of elective cases from acute and emergency services. This was achieved within the National Health Service partly through the 46 NHS treatment centres. In the case of cataract surgery, for example, NHS operations increased from 62,000 a year to 210,000 a year in the five years to 2005, and the average waiting time fell from 200 days to 70. During the same period, ISTCs carried out less than 2 per cent of this number of operations on cataracts, so their impact on the waiting list reduction was minimal. It is interesting to note how much the number of operations rose. That was because, once waiting list times had gone down, many people who had previously been allowed to sit at home with their disability persisting were referred by their GPs. During this same period up to 2005, the more complex procedures also reduced their waiting times a little, but much less dramatically. They were mostly falling before the ISTCs made a significant impact.
	ISTCs are popular with patients, but there is no difference in the standard of clinical care given, according to a recent Healthcare Commission report. On that point, is my noble friend satisfied that inspections of ISTCs by the Healthcare Commission are as rigorous as those in NHS facilities? That has been questioned.
	ISTCs can have adverse effects on the National Health Service. It is now a requirement that patients on referral must have a choice of at least one independent hospital. That has resulted in some NHS facilities being underused and the trust concerned losing money because of the payment-by-results scheme. The "take or pay" arrangement means that NHS trusts are virtually forced to refer patients to ISTCs and other private facilities. In its evidence to the House of Commons Select Committee, the Royal College of Surgeons said that there was "cherry-picking" of the more straightforward cases by ISTCs, leaving the high-risk patients with the NHS, which thus has a slower turnaround and loses payments.
	The removal of straightforward cases to ISTCs has also had a deleterious effect on the training of junior doctors and nurses. The Government say that training will be increased in ISTCs, but training costs money. Will new money be made available for that, rather than requiring payment from the already stretched budgets of postgraduate and undergraduate deans?
	I have more or less come to the end of my time, but I have just scratched the surface of the topic. I have tried to show that there are alternative ways of achieving the results claimed for the private sector. It is held that introducing competition and market discipline will increase efficiency to more than cover any profit taken. I want robust evidence of that. At no point has there been serious evaluation of any private sector scheme before it has been introduced into the NHS on a fairly wide scale. Innovative NHS alternatives, such as NHS treatment centres, have not been given the chance to demonstrate their full effectiveness. I very much hope that the Government will pause for thought before going further down a road that risks fragmenting and destabilising a much valued institution.

Lord Selsdon: My Lords, it is extraordinarily difficult for me to be sandwiched between two great people from St Thomas's. My only activity relating to that great hospital opposite is that, for 10 years, I was a director at a construction company who built the new children's wing. Also, St Thomas's—or Guy's and St Thomas's—were appointed by the Government as lead commissioner to evaluate international hospitals that might be suitable for treating British patients. I found that an extremely interesting scenario.
	Today, I want to try to evaluate what we mean by private sector. I start with the simplistic terms that we are all private people who are members of the general public who voted at an election and, in general, believe that there are certain essential services—we can call them public utilities—which should be provided by the state in the most appropriate manner. The greatest of those by far is health. I stand fair and square behind the principle that healthcare in this country should be free at the point of delivery. The question is: who pays for the infrastructure, who pays for the services and who pays for the support?
	Have the Government effectively mortgaged their souls and bodies for the future? The word mortgage means death grasp or death wish. I am concerned about that as an ex-banker because I never support any word that begins with "p", or "PFI". To respond to some of the questions raised by the noble Lord, Lord Rea, the PFI structure was set up with the best of intentions. Before, there was very little public expenditure on new buildings. Frankly, I preferred the original Ministry of Public Building and Works; I have always preferred public procurement for public buildings. Today, however, we have £2.5 billion of expenditure under the first PFI stage, and expenditure under the next two PFI stages will come to about£12 billion. That is an enormous amount of money.
	The structures that were set up for this were set up in good faith because they estimated that there would be an adequate cash flow into these hospitals to meet the costs and to provide a margin for development and maintenance. Unfortunately, however, there is a shortage in that cash flow because there is a shortage of patients. There is a shortage of patients because there is a shortage of finance to finance the operations of the patients. An extremely serious situation is developing. Added to that is an amazing factor; we do not need as many hospital beds as we thought we did. I have spoken in your Lordships' House about the strange comparison with international figures. We have a million people working in a health service with 200,000 beds, the French have 500,000 people in a health service with 400,000 beds, and the Germans have 650,000 people in a health service with 500,000 beds. Do we have too many people? If we do, do we have too few facilities?
	The Government's 2005 plans to reduce waiting times were that every patient should have four tofive choices of hospital for operations. They also declared that, by 2008, the waiting time would be only 19 weeks and that everyone would have freedom of choice. That meant freedom of choice everywhere. Will the Minister say whether that means that, under EU regulations, it is now possible for a patient who cannot get an operation in the United Kingdom to seek an operation in the EU and be funded by the United Kingdom?
	There is another worry. We had a great health service, and we have great people, but this division between the private and public sectors is strange. Every consultant whom I know, and I know a fair number, works both privately and publicly. He works in National Health Service hospitals or in private hospitals, but he spends a large amount of his time dealing with bureaucracy or on teaching and training, and the waiting lists seem to be getting longer. I made a few inquiries, and found that it is true that the waiting time to see a GP is now probably two weeks instead of four. The moment you see a GP and ask for a referral to a consultant, you are given the option to choose four hospitals, two of which may be near to you and two that may be specialist, but by the time you get through on the telephone, you find that there is no hope of ending up with an appointment. It generally takes between 45 and 47 days to get an appointment but, having got that appointment, you may need a scan or other equipment which leads to a longer delay before you get on to the official waiting list. According to the last waiting list figures given to me by the Government—the best way in which to get figures from the Government is to go to the House of Lords Library; it is much quicker—the waiting time for a knee operation is 39 weeks once you are on the waiting list, and 20 or 25 weeks for other things. I believe that these are the longest waiting lists in the world.
	At the other end of the scale, the hospitals do not have enough patients. They are also restricted from taking international patients. I am not suggesting that international patients should replace British ones, but if sufficient funds are not being made available to the primary care trusts so that they cannot pay for their patients to be treated in the United Kingdom, we should be looking for extra business. If we have mortgaged ourselves and our bodies for the future, we should at least be looking for the revenues that can make our hospitals economic and viable.
	We should also recognise the sudden change in the state of our health. We are healthier and healthier all the time. For the older age group, repairs are often more the key. The move seems to be more towards treatment like the maintenance of an old car. You go in and out of a workshop within a very short period. Likewise, you would not go into a full hospital but into what some people are now calling a patients' hotel, in which the costs would be like that of a two to three-star hotel—about £70 a night at most, or perhaps £50—because it does not need carpets or curtains. It has oxygen cylinders, and it is linked to what could be called a maintenance factory. These changes are taking place. I have spoken to friends in the health service who have indicated that possibly we have too many of the wrong sorts of beds.
	What do we do about it? Certainly, we must look at the new techniques available in the world. The United Kingdom is fairly far advanced in activities that not only save lives but may also save problems. For example, the British urological society has found, in conjunction with the Egyptians and based on ancient mummy technology, the ability to create a bladder from your gut. Doctors and surgeons are being trained so that people will not need the "bag" anymore. There is remote treatment for colon cancer, whereby a blown up picture of all the pixels in your body is hung on the wall and, instead of cutting out good tissue, just bad tissue is picked out. I gather that the machines and equipment are available in the United Kingdom, but that people are unable to use them.
	Not far from Hammersmith and Fulham, where I sometimes am in London, is the Chelsea and Westminster Hospital, which is good, and Queen Charlotte's Hospital. There are problems with Charing Cross Hospital, which is an elderly building and probably needs £100 million spent on it to refurbish it. In the London area, the Ravenscourt Park Hospital, which was the ancient Royal Masonic Hospital, is one of the best hospitals for hips and knees. It has some 200 beds, but only 40 are occupied because it has a shortage of patients. I cannot work out why, when we spend all this money on hospitals and new systems, we do not have the cash flow to permit those hospitals to achieve the objectives that were laid down for them—perhaps many of them were too optimistic. Without that cash flow, we will have a crisis and without the ability to fund the patients who need treatment, we will have a major problem for patients themselves. This problem will not go away. However, if the private and public sectors were to sit together, they could possibly get rid of the PFI concept that I do not like and arrive at something which we might declare to be a really true partnership.

Baroness Murphy: My Lords, I thank the noble Lord, Lord Rea, for raising this debate. I recognise the force behind his arguments, and his commitment and passion for the NHS, but I hope to demonstrate that it is possible to feel as passionate about the NHS with a diametrically opposed view. First, I must declare my interest in healthcare as chair of council at St George's, University of London, which trains doctors and healthcare professionals. I will mention training. I am also a board member of Monitor, the NHS foundation trust regulator, which has seen the benefits of giving a degree of independence to NHS providers in terms of improving financial rigour and quality of care.
	Like the noble Lord, Lord Rea, I have worked in the NHS all my life as a doctor. I know that the NHS must change: I strongly support the Government's reform agenda. Indeed, I urge them to get on with it. The NHS would benefit from a far greater diversity and plurality of providers from within the statutory for-profit and not-for-profit independent sectors. Like other noble Lords, I believe in the founding principle that the NHS should be available free at the point of need. It should be largely a comprehensive health insurance system and an expert commissioner of health services. But I do not see why the whole of NHS care should not be independently provided if it remains largely free to those in need. If the NHS concentrated more on being an expert commissioner of healthcare and freed itself from the provider role, it might make better investment decisions in the light of evidence-based public health need. In that sense, I support the points made by the noble Lord, Lord Selsdon.
	Let us face it, huge chunks of healthcare already provided by the independent sector are paid for by the public purse—for example, half of all care in residential nursing homes. Some 30 per cent of the total NHS budget pays the private sector for pharmaceutical supplies, sterile products, much-maligned information technology and so on. Of the 70 per cent of the NHS budget that is spent on pay, well over a third of it pays GPs, most of whom have always been independent contractors and not salaried employees. The NHS has been buying some operations from the private sector for donkey's years. Mental health service commissioners buy over 60 per cent of secure care from the private sector, and contract out care for some of its most challenging learning disabled patients. The sums spent are close to £1 billion on these last two types of contract alone, so it is a bit late to be squeamish about the private sector's contribution.
	Opinion polls show that the members of the public do not mind whether they are treated in a public or private facility as long as they are treated well. The thing that recently convinced my mother, a lifelong supporter of the NHS, to have her cataract extractions in a Nottingham private hospital instead of the local NHS trust was that her NHS consultant explained exactly how the trust was organising her care at an independent clinic, paying for it and monitoring the outcome. Of course on this occasion there was no competition, but an extremely productive partnership of exactly the kind talked about by the noble Lord, Lord Selsdon.
	The main arguments against independent treatment centres relate to training, sometimes quality of care, and cost. Training does have a price and increasingly I hope the NHS will want to contract training placements from the private sector, and it is time that the deaneries organised themselves in this respect. At the moment too little training is done in the independent sector, as well as too little research and development. Not only does that create artificially low costs for some independent sector treatments, but it also makes it difficult to instil in the trainee an open mind to think about the possibilities of how they work and the culture in which they work. Of course, many of these problems will not be an issue when everyone is on a level tariff, but getting to that level tariff is crucial. The price the NHS pays for private work remains an issue. While it may have been necessary to provide sweeteners to get early contracts in, I fervently hope that the currently above-tariff prices are merely transitional and not a permanent feature.
	Quality of care is an issue. There is much mudslinging from both sides of the fence, but precious little data. The independent sector often has contractual requirements to provide far more detailed data on outcomes than is currently demanded of any NHS trust or individual consultant. Nevertheless, the regulatory framework is different. So far, despite the protestations of some surgeons who see their lucrative sources of income dropping dramatically if there is no waiting list and competition within the independent sector for NHS contracts, there is little hard comparative data on productivity in the new independent sector contracts. One result of private sector involvement, however, may well be better outcome data all round, which can only be to the benefit of patients. Will private sector provision lead to the closure of NHS departments, or even whole hospitals? The answer is maybe, and if commissioning is effective then perhaps it should. Hospitals that lose business will undoubtedly suffer in the new environment, but I hope Ministers will have the courage to see the policy through to what may be uncomfortable conclusions. History in this area, of course, is not encouraging. The question is whether the efficiency gains that independent treatment centres and other private providers can bring can offset the inefficiencies they may well generate in the local district general hospital. We do not know.
	So far, as the noble Lord, Lord Rea, said, the contribution of the independent sector to surgical care has been too small to assess the real impact. However, I would dispute with him that the tumbling waiting lists have had nothing to do with introducing independent sector treatment. The plans for these services have had a huge impact on NHS behaviour. They have had to concentrate harder on how they contract for services. NHS managers have found it easier to negotiate cheaper fees with their own consultants for extra work, with payments well below the standard BUPA rate. This is the sort of outcome competition is supposed to produce. It does not surprise me that the British Medical Association does not like a situation where the NHS moves away from being a monopoly provider; it has served its members extremely well—better than anywhere else in Europe. I ought to admit here to being a member of the British Medical Association, but not always a well behaved one, as noble Lords can see.
	The reaction of the UK private sector is telling. All four major providers have restructured their businesses. BUPA has sold nine of its hospitals because it believes they cannot adapt to the new NHS market and the effect that it is likely to have on the private one. Like other private providers, it is installing the NHS choose-and-book IT system so that patients can gain access to its beds as Patient Choice arrives. All four UK operators have now provided procedures to the NHS at tariff prices or below. This is convincing evidence that the policy is beginning to bite. All this heralds a much less comfortable time for many NHS institutions and staff. The price for this may well be disruption of established services. How bad that is and how well it is handled may well decide whether the outcome of this policy is judged to be a success or failure.
	This is why I believe foundation trust policy is so vital. It allows a measure of independence in decision-making but maintains staff within an employment framework and a pension system which is extremely valuable to them. It gears up providers to be competitive and delivers a mindset to be able to challenge the independent sector at its own game. I hope the Minister will give a commitment to maintaining and developing further those freedoms that foundation trusts currently have.
	I have some questions for the Minister about the plurality of providers. Do the Government have a view on how broad the notion of providers should be? Are there plans to achieve that position or will the market be left to decide? When do the Government expect to provide a true level playing field on tariffs to ensure that the resentments felt by the NHS about the new providers can be challenged on a fair basis?

Baroness Turner of Camden: My Lords, I am grateful to my noble friend Lord Rea for introducing the debate today. It comes at a very opportunetime, following a week in which there havebeen demonstrations—including a march on Parliament—by a workforce that is notably non-militant. It is clear that staff in the NHS are deeply concerned about redundancies and future job prospects. They also attribute many of the problems they face to the piecemeal privatisation, as they see it, of the NHS.
	They believe that the redundancies are being caused by the requirement that health trusts have immediately to clear deficits which have accumulated over a long period. For this they blame government policy with its commitment to creeping privatisation. They point to the impact of the private finance initiative. As well as guaranteed income streams and excessive annual returns, PFI consortia are allowed to keep 70 per cent of windfall gains made from refinancing debt and 100 per cent from trading their PFI gains on the secondary market. It is alleged that, across all sectors, PFI companies will make £148 billion over the next 25 years. It is surely unacceptable that private industry should be making these profits at a time when NHS staff are facing redundancies because of trust deficits.
	Then there are the independent sector treatment centres, to which my noble friend has already referred. These are stand alone private sector clinics specialising in a limited range of simple treatments. They are contracted to carry out procedures at a fixed price, which is paid whether or not the operations are actually carried out. They were supposed to provide extra capacity but they are in fact in competition with the NHS in many areas. I am informed that, on average, they cost 11 per cent more than the NHS for each of their procedures.
	Attempts are also apparently being made to outsource to the private sector the commissioning function of the primary care trusts. Private companies would thus gain control over which treatments patients receive and who provides them. The Government apparently now wish to introduce the private sector into running GP practices. The Department of Health has taken control of the procurement of GP services in a number of areas. In these circumstances, it is not surprising that staff feel that their problems and difficulties are attributable to the privatisation which the Government have undertaken.
	The union Unison says that it has never been opposed to reform but believes that what is happening is not in the long-term interests of the NHS or its patients. Staff who have recently undertaken training are now unable to find jobs. As has already been indicated, there have been redundancies and further redundancies are expected. As a Londoner who is also an NHS patient, I find this absolutely astonishing. The hospital where I am a regular patient always seems to me to be absolutely inundated with work. The staff are very good, but look overstretched to me. Yet I understand that there are to be redundancies.
	During a recent interview, the Health Secretary said that innovations and improved technology meant that it would not be necessary for people to spend so long in hospital, so fewer beds would be needed. We have heard some reference to that this afternoon. In any event, it is said that people prefer to be cared for at home, rather than in hospital. That is fine, as long as support services are available. However, I fear that very vulnerable people, particularly the elderly, will suffer as a result of such a policy. The appropriate services are simply not there.
	I recall only too well my own recent experience. I had a rather difficult operation on my knee which had not gone too well—indeed, it is still not very good, but that is another story. I had been told by the consultant that I would need to spend at least a week in hospital after the operation. To my surprise, the ward manager came to see me a couple of days after the operation and told me that I was going out the next day. I complained that I was in some pain, I could not walk and I lived alone. How was I going to manage, I asked? "Oh", she said, "haven't you any relatives?". "None that lives near", I said. She eventually said that I could have another day so that I could get in touch with my sister who lived in Wiltshire. My sister and brother-in-law came up from Wiltshire to London to collect me, take me back to Wiltshire and there arranged for me to have follow-on therapy at Melksham Community Hospital. The hospital in London simply did not have room for me; it needed the bed.
	I was able to make alternative arrangements, but we have an increasing population of ageing people, many of them women living on their own. Families cannot always help. Support services are very poor in most areas. The notion that they can simply be discharged from hospital very soon after surgery into care services is likely to leave many old people in some difficulty and distress. Or else it means imposing more burdens on families, and carers already save the NHS a great deal of money.
	I believe that the concerns of staff in the NHS should be given greater credence. The vision of an NHS largely provided by an assorted set of private care companies does not give a great deal of confidence. Much money has indeed been spent by the Government on the NHS, and for that the Government are obviously to be commended. But while I—and, I am sure, most people—would be happy to see this money spent on ensuring that the staff are better paid, we are less happy about it forming the basis for huge profits for PFI companies and the private sector.
	Again, I thank my noble friend Lord Rea for giving me the opportunity to speak this afternoon on what I think is a growing problem.

Baroness Barker: My Lords, I, too, thank the noble Lord, Lord Rea, for his very topical subject for debate. It is topical because noble Lords will be aware that in the past two weeks, Patricia Hewitt has appointed Sir Ian Carruthers, who was until recently the acting head of the NHS, as a troubleshooterto quell public rebellion against hospital closures in50 hotspots.
	It is extraordinary that at a time of unprecedented investment in the NHS, there is growing public disquiet about the extent of independent sector involvement in it. I say "extraordinary" because independent sector involvement in the NHS is not new. NHS GP, ophthalmic and pharmacy services have largely been provided by independent contractors since 1948. According to a report by the Healthcare Commission in 2004-05, more than 80 per cent of those who use mental health services in the independent sector are NHS patients, including those in low and medium secure settings. It is not new so why, then, this disquiet?
	The first reason is the fear that there will be a huge impact on other parts of the NHS in a way that is unplanned. The noble Baroness, Lady Murphy, came closest to putting her finger on the real question. There is a deep and growing disquiet at the lack of transparency about the terms on which private sector involvement is taking place in the NHS, leading to a situation in which it is impossible to judge in any objective fashion the true impact on activities and costs.
	ISTCs are expected to provide more than 500,000 elective procedures. Phase 2 of the ISTC provides £2.75 billion over five years for elective surgery and£1 billion for diagnostics. We do not know what the effect of that will be on the NHS. The Government's response to the Health Select Committee's report on ISTCs, Command 6930, is a fascinating document. In a very small, tight, condensed fashion it hits on all the key questions about what the programme is likely to do to the NHS. In response to fears raised by the committee about the capacity of phase 1 ISTCs being built in places where the capacity was not needed—a point touched on by the noble Lord, Lord Selsdon—the Government's response was:
	"Utilisation of ISTCs is high at 84 per cent and we are unable to benchmark this against NHS performance".
	Why not? That is an absolutely crucial piece of management information which any enterprise would be expected to have. It is essential to work out whether something is providing value.
	The Health Select Committee also made the point that while ISTCs have increased choice at more locations—and they have provided earlier treatment—there is no information about clinical quality, so patients cannot exercise informed choice. The Healthcare Commission is reviewing the quality of care provided by ISTCs to patients and will publish its findings in March 2007. It will state whether there is evidence about the extent to which the quality of clinical care in ISTCs meets recognised professional and regulatory standards. Would it not have been wiser to have that information before going ahead with another phase of ISTC development? Would that not be a sensible way in which to ensure that patients received treatment that was not only timely but safe? I think that we are all in agreement that the ISTC programme is not at the moment a damaging thing to its NHS competitors, but there is no way of evaluating whether we are comparing like things.
	In the Health Select Committee report, in paragraph 103 on page 37, the committee addresses the issue of value for money and the NHS equivalent costs of the ISTC programme. The noble Baroness, Lady Turner, mentioned this figure and said that ISTC procedures were deemed to be 11.2 per cent more costly. They are—and they are considerably lower than the cost of spot-purchasing individual procedures privately. But the Government's defence of the whole ISTC programme and buying in this extra capacity was that it was based on an analysis of projected need conducted by strategic health authorities.
	That begs two questions. First, how good was that analysis? As the noble Lord, Lord Selsdon, said, a great deal of money is put into NHS facilities, and there appears to be very little co-ordination between the provision of the service and the demand for it. The second question that arises from the Health Select Committee report is about the block contract arrangements. The noble Lord, Lord Rea, was right in saying that the "take or pay" nature of those contracts led to a distortion of provision. The Government have defended that form of contract, saying that they need to balance risk and cost for these new providers. That is extraordinarily generous of them.
	I should declare that in my working life I advise not-for-profit companies that seek to provide services to the NHS—principally, primary care services. We routinely, along with the lawyers who advise us, tell them to watch in all tender and contract negotiations for risk being loaded on to them as providers. That the NHS should choose in this instance to carry the risk itself is fairly unusual. How will that risk-loading on contracts be dealt with in the next phase of contracts? To what extent are the transactional costs for contracts in the private sector factored into the evaluation of the comparison with NHS equivalents?
	In the time left to me I shall concentrate on the potential contracting out of PCT commissioning. In June 2006 the Government advertised for firms to, in effect, take on the role of commissioning servicesin the NHS. It was a very strange decision. There had been no public debate about it. It was not a manifesto commitment. The advert was actually withdrawn. It is not possible to determine exactly what the Government's intentions were, but their decision implied that they felt a lot of services run by PCTs, including commissioning, were inadequate and would be more effectively provided by the private sector, thereby putting it potentially in control of three-quarters of the NHS budget—that is, about£65 million.
	Our view on these Benches is that there are areas in the country where the quality of commissioning is poor. However, the case for bringing in the private sector to take over that commissioning function has not been made, because it is not clear on what basis the private sector would do that. One is left to assume that services would be commissioned principally on the basis of cost, not of quality. That leads us to suggest that there is no evidence that the development of private commissioning would be preferable to improving commissioning skills and capacity within the NHS; for example, by disseminating good practice.
	Much has been said already on the subject of PFI. I support the noble Lord, Lord Rea, in his question to the Minister about how the Government can justify the payment of £53 billion for private finance initiative hospitals that are worth only £8 billion. In September 2006, in a speech to the IPPR, Patricia Hewitt stated that there was no limit to the role of the independent sector in the NHS. We would add to that the words, "as providers competing on fair and equal terms, judged by the same quality standards and required to provide the same management information, and working with the same obligation to work in partnership with those parts of the NHS that will never be commercially attractive but will always be needed".
	As in other public sector services such as education, what is happening is yet another round of rushed structural reforms in pursuit of very short-term gains. We believe that the NHS working with the independent sector has a bright future, provided that there is coherence in Government policy, and that what we are buying for the NHS is increased resources and not increased competition for the future, at a time, as the noble Lord, Lord Selsdon, has said, when services and demand will be different.

Earl Howe: My Lords, as I suspected, the innocent-looking Question tabled by the noble Lord, Lord Rea, turned out not to be so innocent. He has done us a service by raising a series of issues that lie at the very centre of the Government's health policy, and I listened with care and a good deal of agreement to all that he had to say.
	My personal starting point in all this is that there is nothing inherently peculiar about the private sector being involved in NHS delivery. If we think about it—the noble Baroness, Lady Murphy, drew our attention to this—private enterprise has been involved in the NHS in all sorts of ways from the inception of the service. You go to see your GP, who is an independent practitioner; he gives you a prescription for a medicine dispensed by your local chemist, who himself runs a private business. The medicine is delivered to the pharmacy by a wholesaler and manufactured by a pharmaceutical company, both of which are private enterprises. These things are part of normal, everyday life for the NHS; we do not think twice about them, and, indeed, the sums are huge. So as regards the basic principle of private sector involvement in the delivery of NHS care, I do not think that we should allow ourselves to get too hung up. When I first read the noble Lord's Question I made the assumption, which turned out to be correct, that he was not really concerned with any of the things that I have just mentioned but with other, more topical issues. I guessed that PFI would be one.
	The major advantage of PFI cannot really be costed in money. It is that by arranging matters in such a way that the private sector builds, operates and maintains a hospital throughout that hospital's predicted life, NHS patients receive the benefit of that facility much sooner than they otherwise would have under the public finance route. Furthermore, the maintenance of the building is guaranteed by the contractor over the entire period and the business risk transferred away from the taxpayer. That much of PFI is generally agreed to be positive. However, the key question, on which the noble Lord put his finger, is not whether the public have received a benefit from the PFI deal, but whether they have received good value for money.
	In May of this year the Public Accounts Committee of another place produced the results of its report into the refinancing deal at the Norfolk and Norwich Hospital, one of the first major PFI deals to be signed by the Government in 1998. Two years later Octagon refinanced the project, and in so doing increased the rate of return to investors to more than three times that which it predicted in its original bid. The PAC was scathing about this deal, referring to,
	"the unacceptable face of capitalism",
	and stating:
	"It is hard to escape the conclusion that the staff managing the project were not up to the rough and tumble of negotiating refinancing proposals with the private sector".
	Those words came to mind last week when the Government published a Written Answer, to which a number of noble Lords referred, giving the capital value of each PFI hospital alongside the unitary payments for that hospital during the life of the PFI contract. The Answer makes astonishing reading. PFI hospitals with an aggregate capital value of £8 billion will cost the taxpayer no less than £53 billion over the life of the contracts, a ratio of about six and an half to one. That large difference, of course, includes within it both the cost of money and the cost of so-called "hard services" such as buildings maintenance. But the revealing aspect relates to those hospitals where the PFI contract also covers so-called "soft services"—cleaning and catering. Cleverer heads than mine have analysed the figures and worked out that on average each of those hospitals is paying no less than £39,000 per day, every day, during the life of the contract just for cleaning and catering. The mark-up has to be enormous.
	But the irony of PFI is that, after promising the biggest ever hospital building programme in the history of the NHS, the Government now say that they do not want care to be provided in hospitals after all. As we all know, hospitals around the country are suffering cutbacks and closures, and in the midst of all that more than 80 NHS organisations are locked into very long-term contracts for the building of large hospitals that we have no idea whether the NHS will actually need. It is the inflexibility of these contracts which has turned them into a financial straitjacket. In the new world of intense competition between providers, hospitals do not want to be locked into commitments lasting into the 2030s; it is a handicap which they simply cannot afford if they are to remain competitive: Queen Elizabeth Hospital, Woolwich being the obvious example.
	Many PFI contracts were drawn up at a time when service level agreements offered stability of income. Now, under payment by results, the goalposts have moved, and those hospitals find not only that their income is more volatile but that the level of the tariff is totally unrealistic in relation to their running costs. I seriously question whether the right hand of the Department of Health realised what the left hand was doing when, first, payment by results, and then care in the community became part of mainstream health policy.
	Then there are the independent sector treatment centres. The cost-effectiveness and value for money of ISTCs has been difficult for mere mortals to establish, because the Department of Health has refused to release a lot of relevant information on the grounds of business confidentiality. The evidence that exists in the public domain shows that the NHS and the taxpayer are often paying a premium for independent sector involvement; on average 9 per cent and perhaps 11 per cent more than the NHS equivalent costs. There are reasons for that premium, which no doubt the Minister will set out. However, the real concern here is that, under the terms of their contracts, ISTCs are paid irrespective of whether they have completed the work that they have contracted to do. In some instances, they have been paid in full when only 73 per cent of the contracted procedures have been carried out. I suggest to the Minister that that is a high price to pay for the additional capacity afforded to the NHS by these centres. We all want that capacity, but not in a form that could destabilise the local NHS.
	That risk was highlighted by the House of Commons Health Select Committee in July. The ISTC programme will eventually provide about half a million procedures a year, at a cost of over £5 billion. Unless these contracts are managed extremely carefully, the viability of a number of NHS providers in certain areas of the country is very likely to be affected adversely, and not necessarily through any fault of their own.
	The Secretary of State said recently:
	"If independent providers can help the NHS provide even better care and value for patients, we should use them".
	I fully agree with that. Where I disagree with the Government is on the way in which independent providers are currently being used. Patient referrals are being channelled towards ISTCs irrespective of the wishes of patients, thanks to so-called referral management centres. For as long as that continues, the idea that ISTCs are serving to enhance patient choice looks like something of a fiction.
	The virtue of ISTCs should not just be to enhance capacity, but to enhance choice. That is why the Government need not set any artificial limits on the NHS's use of the independent sector. The only limit should be that exercised by patients making the choice of where they want to be treated. Some people are fearful that having a greater plurality of providers will fragment patient care and reinforce boundaries between institutions. We need to take account of that worry, but perhaps not overplay it. The Connecting for Health programme, when it comes on stream, will serve to dissolve many of the boundaries that might otherwise affect patient care. We need to have certainty over the quality of treatment delivered by ISTCs. The BMJ in recent months has contained some worrying anecdotes on that score, including inadequate training of surgeons, poor supervision and poor clinical governance procedures, so it is reassuring that the Healthcare Commission is currently examining quality standards in ISTCs. There needs to be a level playing field across the piece.
	One issue that was not covered by the noble Lord, Lord Rea, but was raised by the noble Baroness, Lady Barker, is private sector commissioning. I am running out of time, but I want to sound a note of warning. I am worried that if that really is the way that we are going, it could represent a very serious wrong turning, not least in the context of the future development of effective practice-based commissioning. One has to question whether the ethos and values of a private sector organisation will make it fit for purpose as a commissioner.
	PCTs have public service values and they are accountable. Private commissioners are differently motivated and they are not in the same sense accountable to the public. The way in which private companies operate is too often hidden by considerations of commercial confidentiality, and it is questionable whether they will be susceptible to judicial review. If the Government want to go down the road of private sector commissioning, we need, at the very least, an open debate about it and about what it will mean for the NHS and for patients.

Baroness Royall of Blaisdon: My Lords, I am grateful to my noble friend for initiating this short but passionate debate. It raises many questions that we must discuss, and I hope that we will have many more opportunities to do so.
	My noble friend was absolutely correct, and I start by stating categorically that we will never compromise on the fundamental principle of a health service funded through general taxation, available to each of us equally and free at the point of use, with care based on need and not on ability to pay. Those fundamental principles were the starting point for the NHS Plan, which we set out in 2000, and they have not changed. We will never compromise those values. Indeed, not only are the changes and reforms that we are making consistent with our traditional values, they are essential if we are to protect those values for another generation.
	Over the past five years, we have seen far-reaching improvements in the health service. They have been delivered thanks both to the dedication and commitment of NHS staff and to the record levels of investment that the NHS has received under this Government—from £33 billion in 1997 to £69 billion this year and £90 billion by 2008. All that money has been, and will be, spent on providing the healthcare that people want, whether provided directly by the NHS, by the independent and voluntary sector or by private companies, in hospitals, in specialist centres, in the community or in their homes.
	We are now six years into our 10-year programme of health reform, as set out in the NHS Plan, in which we also clearly set out our strategy and path for progress. We are not talking about a rushed set of reforms to produce short-term gain. Indeed, there are four key elements of health reform: more choice and a stronger voice for patients; money following the patient; a regulatory system that will guarantee quality; and a range of providers so that patients and commissioners can get the right services in the right place at the right time.
	It was one of the core principles of the NHS Plan, explicitly endorsed by many of the organisations which marched on Wednesday, that we would strengthen partnerships—as stressed by many noble Lords—with patients, their carers and families, NHS staff, and public sector, voluntary and private providers in supplying the highest quality, patient-centred services.
	The involvement of the independent sector is not a departure from NHS values—far from it. I emphasise three points. First, the NHS will always remain a provider because of the quality and commitment of its staff, in and outside hospitals. Secondly, as the noble Earl, Lord Howe, clearly stated, the NHS has always been a mixed economy of care. State-owned hospitals have worked happily with GPs—the majority of them private businesses dependent on the profits from their practices—since the founding of the NHS; and the private sector has been widely used to meet particular pressures—at a very high cost, as pointed out by the noble Baroness, Lady Barker. That is not new, and it has not happened only under this Government's watch. When 40 per cent of secure mental health beds and nearly half of NHS abortions are provided in the private or not-for-profit sector, we should not try to set arbitrary targets or limits on one provider or another.
	Thirdly, where a particular service is not meeting the needs of local people, commissioners will be free to find the best organisation or partnership to provide the services that are needed. I stress at this point that it is not private sector commissioning—just advice and support to PCTs. PCTs remain responsible for all commissioning decisions. I know that that concern has been raised by many noble Lords.
	I now turn to the figures. Although information on the proportion of NHS finances currently spent on the private sector is not collected centrally, the department does collect fairly comprehensive information on the proportion of total NHS spend on non-NHS provision. However, as well as including the spend on private sector provision of healthcare services, this includes substantial expenditure on local authority and not-for-profit provision of healthcare services, as well as expenditure on public/private partnership capital investment schemes such as PFI and NHS LIFT. In 2004-05, the last year for which full figures are available, the NHS spent a total of £4.1 billion, 5.9 per cent of total NHS spend, on non-NHS provision. That figure excludes long-standing arrangements relating to the general medical, pharmaceutical and optical services and the purchasing of pharmaceutical products and medical devices from the private sector. It also, of course, excludes the cost of GPs, the majority of whom are, and have always been, private businesses dependent on the profits from their practices.
	As for future spend on the private sector, I draw attention to the fact that, where clinically appropriate, patients can choose in which hospital they would like to be treated. A great many will choose to go to their local NHS hospital; others will not. It would be injudicious to set an arbitrary limit on the proportion of NHS spend in the private sector in the future. Although 2004-05 is the last year for which I can provide a fairly definitive figure, at the end of 2005-06 expenditure on the first wave of independent sector treatment centres had reached £136 million; expenditure on PFI schemes for that year was£468 million; and expenditure on NHS LIFT, the public/private partnership to improve our primary healthcare infrastructure, was £100 million.
	Understandably, today there has been much interest in ISTCs. The total investment in wave 1 of that programme will be approximately £1.6 billion and in phase 2 we expect to invest £3 billion on elective services and a further £1 billion on diagnostics services. That expenditure is clearly to be made over a number of years.
	Concern has been expressed about possible destabilisation of existing service providers. In phase 2 of the procurement, there is a robust process to ensure that there is local support and a capacity need for each ISTC. That includes the SHA demonstrating how the ISTC will be integrated within the local health economy and how any impact on the activity levels and capacity of existing providers will be managed.
	We recognise the importance of the provision of training for NHS staff in ISTCs. Training pilots are now taking place in wave 1; for example, there is training for doctors and nurses in Brighton, York and Burton, as well as many other forms of training. In the second phase of ISTCs being procured at the moment, all schemes will have the capacity to offer clinical training experience. It will be a matter for educationists locally to take this up and, if they do so, there will be no additional cost. Like the noble Baroness, Lady Murphy, I hope that the deans will ensure that that becomes practice. Do ISTCs cherry-pick? No. They were established precisely to offer dedicated facilities for specific types of planned surgery. Similarly, units have been established by NHS hospitals, and the number of places in NHS treatment centres far exceeds those in ISTCs.
	The noble Baronesses, Lady Turner and Lady Barker, spoke of the premium to ISTC providers. Premiums recognise that ISTCs face costs that are not borne by the NHS, such as staff recruitment, the cost of financing new buildings and many other things. We do not expect to pay the same premium in the next phase of procurement. That is important.
	Noble Lords have rightly stated that the Select Committee in the other place was told that the department is still negotiating contracts for the next phase of ISTCs and, therefore, the committee was unable to receive all the information that it required. That is absolutely right, because to have provided all the figures could have adversely affected the department's ability to achieve best value for money for taxpayers in these negotiations. However, a point often missed is that the Select Committee was offered—it took up the offer—a private meeting with Ken Anderson, director-general of the department's commercial directorate, to discuss these matters. The department and the NHS are committed to evaluating the impact of the reform programme so that the lessons of the current reforms can be used for policy development in future.
	The noble Earl, Lord Howe, made a point about referral management centres which, it is alleged, are being used by PCTs to intercept GP referrals and divert them to private providers. The most recent guidance issued by the department to the NHS made clear that referral management centres must not be imposed on GP practices. They must abide by clear protocols that provide tangible clinical benefits to patients and should provide feedback to practices on referrals, thus enabling GPs to review the appropriateness of their referrals.
	The noble Lord, Lord Rea, asked whether inspections of ISTCs are as rigorous as those of NHS trusts. The quality of treatment must be paramount, and ISTCs are subject to inspection and audit by the Healthcare Commission, as is the NHS. In addition, providers of ISTCs are subject to a rigorous contractual performance regime to ensure that they provide the high level quality of care that we expect for NHS patients. Like the noble Baroness, Lady Murphy, I believe it is clear that ISTCs are having an effect on practice in the NHS and the private sector.
	Many noble Lords raised questions about the private finance initiative. The way in which the Opposition and many others have chosen to use government figures is wrong and grossly misleading. The relevant figures are £8 billion for the capital cost of PFI hospitals open or under construction and£53 billion for subsequent annual payments to the private sector partners over the next 30 years. The annual payments made by NHS trusts to their private sector partners cover financing charges, building maintenance and, in most cases, all the non-clinical support services such as cleaning, laundry, catering, portering and security, which can account for between 40 per cent and 50 per cent of the annual payments. Pure capital cost accounts for as little as one-fifth of the overall total paid by the trust. The £53 billion figure also includes inflation compounded over30 years, whereas the £8 billion figure for capital costs only includes inflation for the build period, which is usually two or three years. Therefore, the figures are simply not comparable.
	At the end of a typical PFI contract period, the NHS trust always exercises a first option on the property in the interests of the NHS. At that point, the private sector partner has recovered all its costs and leases automatically fall away at the same time, leaving the trust free to run the hospital itself, retender the PFI contract or realise the investment potential of the site. I will write to the noble Lord with a breakdown of costs and interest rates and place a copy in the Library for the information of all noble Lords.
	For users of the National Health Service to have a real choice and a real say in their healthcare, there must be real diversity of provision. That means that commissioners of services must have the freedom to make decisions and exercise options for action. It also means regulated access to the private and voluntary sectors, but it does not mean privatisation. Most noble Lords in the Chamber agree on that point. We have always procured services from the private sector, and we always will. The difference is that we are now doing it rationally within clear regulatory and financial frameworks for the benefit of all of us who use the NHS. Whether services are provided by NHS hospitals, privately owned ISTCs, not-for-profit social enterprises or voluntary bodies, they will be commissioned and paid for by a publicly funded NHS. If independent providers can help the NHS provide even better care and value for patients, we should use them. If they cannot, we should not. That is the bottom line.
	I am pleased to report to the noble Lord, Lord Selsdon, that we are on target to reach 18 weeks by 2008 and the target will cover the whole patient pathway from GP referral to main treatment by a consultant. It was designed in order to get rid of the so-called "hidden waits" that he so graphically demonstrated.
	My noble friend Lady Turner mentioned the primary care sector and innovation. We have an obligation to patients, who deserve the best quality services. It is crucial in under-doctored areas or where existing practices fail to meet the needs of their population that PCTs commission new services from different providers, whether existing high-quality practices or new providers. That is why we are taking that action.
	The noble Baroness, Lady Murphy, asked: when will we provide a level playing field of tariffs? We will do that once centrally procured contracts have ended. All providers will then be required to operate at tariff. How broad is our notion of providers? By the end of 2008, patients will be able to choose to go to any provider that can meet the NHS quality and tariff.
	The NHS does not have a monopoly on values, and the private sector certainly does not have a monopoly on efficiency. What we are looking and working for is a partnership, delivering quality care that brings together values, best value and efficiency for the benefit of all of us who use and pay for the NHS.

House adjourned at nine minutes before four o'clock.